-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mpMuAW+mT9fevseNdWhMxuknH5rE1VKlqPSCrOtYT80JvwNldvipZAWl+UxCdRnQ /jWlQ051XJBDPL706k0PRw== 0000950144-94-000787.txt : 19940404 0000950144-94-000787.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950144-94-000787 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURNER BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000100240 STANDARD INDUSTRIAL CLASSIFICATION: 4833 IRS NUMBER: 580950695 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08911 FILM NUMBER: 94519562 BUSINESS ADDRESS: STREET 1: ONE CNN CENTER STREET 2: 100 INTERNATIONAL BLVD CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4048271700 MAIL ADDRESS: STREET 1: P O BOX 105366 CITY: ATLANTA STATE: GA ZIP: 30348-5366 FORMER COMPANY: FORMER CONFORMED NAME: TURNER COMMUNICATIONS CORP DATE OF NAME CHANGE: 19791016 FORMER COMPANY: FORMER CONFORMED NAME: RICE BROADCASTING CO INC DATE OF NAME CHANGE: 19700909 10-K 1 TBS 10-K - 12-31-93 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-9334 TURNER BROADCASTING SYSTEM, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-0950695 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 30303 ONE CNN CENTER (ZIP CODE) ATLANTA, GEORGIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(404) 827-1700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------------------------------------- ------------------------ 12% Senior Subordinated Debentures due October 15, 2001 American Stock Exchange Class A Common Stock, $.0625 par value per share American Stock Exchange Class B Common Stock, $.0625 par value per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of voting stock held by non-affiliates of the registrant as of January 31, 1994: $323,720,000 Class A Common Stock, $922,253,000 Class B Common Stock, $252,247,000 Class C Convertible Preferred Stock. The number of shares outstanding of each of the registrant's classes of common stock as of December 31, 1993: Class A Common Stock, par value $0.0625 -- 68,330,388 shares and Class B Common Stock, par value $0.0625 -- 120,887,672 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1993 (the "1993 Annual Report to Shareholders") are incorporated by reference in Part I, Item 1 and Part II, Items 5-8 of this Report, as more particularly described herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS BACKGROUND Turner Broadcasting System, Inc. (the "Company") is a diversified information and entertainment company which was incorporated in the State of Georgia in 1965. Through its subsidiaries at December 31, 1993, the Company owned and operated three domestic entertainment networks, three international entertainment networks (together the "Entertainment Networks"), and three news networks. The Company produces, finances and distributes entertainment and news programming worldwide, with operations in motion picture, animation and television production, video, television syndication, licensing and merchandising, and publishing. In December 1993, the Company acquired Castle Rock Entertainment ("Castle Rock"), a motion picture and television production company, and in January 1994, the Company completed its acquisition of New Line Cinema Corporation ("New Line"), an independent producer and distributor of motion pictures. Also in December 1993, the Company acquired the remaining 50% interest in HB Holding Co., which owns over 3,000 one-half hours of animated programming. BUSINESS SEGMENTS As a result of the Company's recent acquisitions and expanded emphasis on entertainment production and distribution, beginning with the 1993 year-end reporting period and reclassified for prior periods, the Company's operations were divided into two primary industry segments: Entertainment and News. The Entertainment Segment consists of Entertainment Networks and Entertainment Production and Distribution; the revenue generated by this segment (after elimination of intersegment revenues) represented 60% of the Company's consolidated revenue for the year ended December 31, 1993. The News Segment is comprised of domestic and international news networks and generated 31% of the Company's consolidated revenue for the year ended December 31, 1993. For financial information about the Company's industry segments for each of the three years ended December 31, 1993, see Note 14 of Notes to Consolidated Financial Statements on page 47 in the Company's 1993 Annual Report to Shareholders, which is incorporated herein by reference. ENTERTAINMENT The Company's Entertainment Segment consists of Entertainment Networks and Entertainment Production and Distribution. ENTERTAINMENT NETWORKS At December 31, 1993, Entertainment Networks included three domestic networks (TBS SuperStation, Turner Network Television ("TNT") and the Cartoon Network) and three international networks (TNT Latin America, Cartoon Network Latin America, and TNT & Cartoon Network Europe). For selected information concerning household coverage, viewership and ratings of the Entertainment Networks, refer to page 17 in the Company's 1993 Annual Report to Shareholders incorporated herein by reference. Domestic TBS SuperStation is a 24-hour per day independent UHF television station located in Atlanta, Georgia, which is transmitted over-the-air to the Atlanta market and is also retransmitted by common carrier via satellite to cable systems located in all 50 states, Puerto Rico and the Virgin Islands. TBS SuperStation relies principally on advertising revenue and receives no compensation for its signal from cable systems (other than indirectly from copyright fees paid and allocated through the Federal Copyright Royalty Tribunal ("CRT") 3 for Company-owned programs) or from Southern Satellite Systems, Inc. ("Southern"), the common carrier which delivers its signal to the cable systems. Generally, the Company does not have contracts with the local cable systems controlling coverage of the TBS SuperStation signal; nor does the Company have a contract with Southern, which is a common carrier controlled by Tele-Communications, Inc. (see Items 10, 12 and 13 of the amendment to this Form 10-K to be filed pursuant to General Instruction G(3) of Form 10-K), requiring retransmission of the TBS SuperStation signal. Local cable systems contract with Southern for use of the TBS SuperStation signal. This retransmission of the TBS SuperStation signal could be discontinued by the carrier subject to Southern's contracts with the local cable systems. In view of the substantial aggregate fees received by Southern from the local cable systems for the TBS SuperStation signal, the Company considers voluntary discontinuance of such retransmission by Southern unlikely. TNT is a 24-hour per day advertiser-supported cable television entertainment program service that was launched in October 1988. The Cartoon Network is a 24-hour per day advertiser-supported cable television animated program service that was launched in October 1992. Both networks are transmitted via satellite for distribution by cable television operators and other distributors. They derive revenue primarily from two sources: the sale of advertising time on the networks and the receipt of per-subscriber license fees paid by cable operators and other distributors. The sale of advertising time is affected by viewer demographics, viewer ratings and market conditions. In order to evaluate the level of its viewing audience, the Company makes use of the metered method of audience measurement. This method, which provides a national sample through the use of meters attached to television sets, produces a continuous measurement of viewing activity within those households. The Company utilizes the services of A.C. Nielsen ("Nielsen"), the metered estimates of which are widely accepted by advertisers as a basis for determining advertising placement strategy and rates. The rating measurements supplied by Nielsen are translated into advertising revenues on the basis of the average cost per thousand homes charged for advertising ("CPM"), which is negotiated by the advertiser and the telecaster. The CPM will vary depending upon the type and schedule of the program that will carry the advertisement, as some programs and time slots are viewed by advertisers as delivering a more valuable audience segment than others. Total advertising revenues are a function of the audience sold, the CPM charged to advertisers and the number of advertising spots sold. International TNT Latin America, which was launched in January 1991, is a 24-hour per day trilingual entertainment program service distributed principally to subscribing cable systems in Latin America and the Caribbean. At December 31, 1993, TNT Latin America was available in 30 countries and territories via satellite. Revenues from this service are derived almost entirely from subscription fees based on contracts with cable operators that specify minimum subscriber levels. Cartoon Network Latin America is a 24-hour per day trilingual animated program service which was launched in April 1993 and is distributed principally to subscribing cable systems in Latin America and the Caribbean. Cartoon Network Latin America is available via satellite in 24 countries and territories and derives most of its revenue from subscription fees based on contracts with cable operators. TNT & Cartoon Network Europe is a 24-hour per day program service consisting of European versions of the Cartoon Network and TNT, originating in the United Kingdom and distributed throughout Europe. This dual programming service features 14 hours of animated programming during the day and ten hours of film product at night. Approximately 40% of its schedule is dubbed audio or subtitled in six languages -- English, French, Spanish, Swedish, Norwegian and Finnish. This service was launched in September 1993, and derives most of its revenue from advertising sales and subscription revenues. 2 4 Programming The Entertainment Networks telecast 24-hours per day, 7 days per week. The Company fulfills its programming needs through use of its copyright owned libraries, syndicated programming, original productions and program rights to sports events. Copyright ownership consists chiefly of the world's largest film and animation libraries: 3,400 films, 8,600 cartoon episodes and over 2,200 hours of made-for-television programming. The Company also has the capability to produce four of the most popular and universal types of programming: news, sports, movies and cartoons. The Company has acquired programming rights from the National Basketball Association (the "NBA") to televise a certain number of regular season and playoff games in each of the 1994-1995 through 1997-1998 seasons in return for rights fees aggregating $352 million plus a share of the advertising revenues generated under the agreement in excess of specified amounts. The Company also entered into an agreement with the National Football League to televise a certain number of pre-season and regular season Thursday and Sunday night games in each of the 1994 through 1997 seasons in return for rights fees aggregating $496 million. In addition to basketball and football, the Company has acquired programming rights to televise the 1994 Winter Olympics on TNT and to televise the Atlanta Braves on TBS SuperStation. The Company will also produce and telecast the Goodwill Games in 1994. The Goodwill Games is a quadrennial international multi-sport event which provides approximately 128 hours of programming for the Company. The suppliers of substantially all programming telecast by TBS SuperStation, other than programming owned by the Company, own or have rights to the copyrights to such programming. The use and telecast of such programming by TBS SuperStation is subject to TBS SuperStation's licensing agreements with these suppliers and the Copyright Act of 1976, as amended (the "Copyright Act"). A small number of the licensing agreements contain provisions which restrict the broadcast of the programming by TBS SuperStation to the Atlanta market. The Company typically pays program suppliers a license fee significantly in excess of the market rate for programming aimed at the Atlanta market alone. In addition, the program suppliers collect copyright royalties from the CRT funded by all cable operators that carry the TBS SuperStation signal. Although it is possible that program suppliers could initiate legal action against the Company alleging breach of licensing agreements, no such actions have been instituted to date and the Company believes the probability of litigation against the Company in this regard is remote. Furthermore, as a basis for the position that the nationwide transmission of TBS SuperStation programming by Southern does not infringe upon the rights of copyright owners or their licensees, the Company has relied upon the Copyright Act which exempts certain secondary transmissions by carriers from copyright liability. See "Business -- Regulation -- Copyright License System." Competition TBS SuperStation, TNT and the Cartoon Network compete with other cable programming services for distribution to viewers, and compete for viewers with other forms of programming provided to cable subscribers, such as broadcast networks and local over-the-air television stations, home video viewership, movie theaters and all other forms of audio/visual entertainment, news and information services. In the Atlanta market, TBS SuperStation vies for viewers with affiliates of the four major networks, two other independent stations and two affiliates of the Public Broadcasting System, in addition to other programming available to local cable subscribers. The continued carriage of the TBS SuperStation signal, or the addition of that signal to cable system operators, could be adversely affected relative to other cable-delivered programming by the requirement that cable operators pay copyright royalty fees for each distant non-network signal carried by their systems. See "Business -- Regulation -- Copyright License System." Internationally, TNT Latin America, Cartoon Network Latin America and TNT & Cartoon Network Europe compete with cable programming services for distribution to viewers, and compete for viewers with other forms of programming provided to cable subscribers, such as broadcast networks and local over-the-air 3 5 television stations, home video viewership, movie theaters and all other forms of audio/visual entertainment, news and information services. ENTERTAINMENT PRODUCTION AND DISTRIBUTION The Entertainment Production and Distribution companies are involved in the creation of programming or the distribution of original and library product to the Entertainment Networks or third parties. Production companies include Turner Pictures, Inc., which produces original movies for distribution in various markets; TBS Productions, which specializes in non-fiction entertainment and documentary productions; Hanna-Barbera Cartoons, Inc., an animation studio; and the newly acquired Castle Rock Entertainment ("Castle Rock"), a motion picture and television production company. Additionally, in January 1994 the Company purchased New Line Cinema Corporation, a motion picture production and distribution company. The Company owns two major copyright libraries. The Turner Entertainment Co. library (the "TEC Library") contains approximately 3,400 Metro-Goldwyn-Mayer, Inc. ("MGM"), RKO Pictures, Inc. ("RKO") and pre-1950 Warner Bros. films, 3,000 short subjects and 1,850 cartoon episodes, and a number of television shows. The Hanna-Barbera library (the "HB Library") consists of over 3,000 half-hours of animation programming. Programming from both libraries has been used to launch Entertainment Networks, such as TNT and the Cartoon Network, and as cost-effective sources of on-going programming needs. The Company-owned programming is marketed and distributed in the domestic theatrical, pay-per-view, home video, syndication and basic cable network markets principally through its own organization, except for certain pre-existing agreements related to the TEC Library and Castle Rock product. Pursuant to a 1986 agreement with its predecessor, MGM became the designated distributor in the home video market of the MGM and pre-1950 Warner Bros. films in the TEC Library, both domestically and internationally. The distribution agreement (the "Home Video Agreement") provides for a fifteen-year term commencing June 6, 1986, with distribution fees payable based primarily on the suggested retail price of the films sold. Under the agreement, TEC is responsible for all recording and releasing costs and has significant consultation rights with respect to marketing, distribution and exploitation of the films. In November 1990, MGM entered into an agreement with Warner Home Video, Inc. with respect to certain of MGM's obligations under the Home Video Agreement. Also, pursuant to a 1986 agreement with a term of 10 years with its predecessor, MGM became the designated distributor in the theatrical and non-theatrical exhibition markets of the TEC Library; however, the Company has international distribution rights to certain RKO product in certain international markets. In addition, the Company has licensed original TNT productions for theatrical distribution through several distributors in various countries outside the United States and has also entered into domestic licensed theatrical distribution agreements. After the expiration of pre-existing distribution agreements with Columbia Pictures, Castle Rock product will become available for international home video and theatrical distribution by the Company in 1995, domestic home video distribution in 1996 and domestic theatrical distribution in 1998. The Company's ancillary distribution capabilities include licensing and merchandising, publishing, educational applications, video games and interactive activities. The licensing of the Company's programming is accomplished through sales offices located in Atlanta, Chicago, Los Angeles and New York domestically, and internationally in Argentina, Australia, Brazil, France, Hong Kong, Japan, Mexico, the Netherlands, Puerto Rico and the United Kingdom. Competition Programming for television and the production of major motion pictures are highly competitive businesses in which the main competitive factors are quality and variety of product and marketing. Production companies compete with numerous other motion picture and television production companies, and with 4 6 television networks and pay cable systems, for the acquisition of literary properties, the services of performing artists, directors, producers, and other creative and technical personnel as well as for paying audiences. NEWS At December 31, 1993, the Company's News Segment consisted of two domestic networks (Cable News Network ("CNN") and Headline News) and one international network (Cable News Network International ("CNN International")) (all such networks, the "News Networks"). For selected information concerning household coverage, viewership and ratings of the News Networks, refer to page 23 in the Company's 1993 Annual Report to Shareholders incorporated herein by reference. DOMESTIC CNN is a 24-hour per day cable television news service which was launched in June 1980. CNN uses a format consisting of up-to-the minute national and international news, sports news, financial news, science news, medical news, weather, interviews, analysis and commentary. CNN obtains reports from 28 news bureaus (as of December 31, 1993), of which nine are in the United States (Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, New York, San Francisco and Washington, D.C.) and 19 are located outside the United States (Amman, Bangkok, Beijing, Berlin, Brussels, Cairo, Jerusalem, London, Manila, Mexico City, Moscow, Nairobi, New Delhi, Paris, Rio de Janeiro, Rome, Santiago, Seoul and Tokyo). In addition to these permanent bureaus, CNN maintains satellite newsgathering trucks in the United States, portable satellite up links (flyaways) in the United States and abroad and a network of hundreds of broadcast television affiliates in the United States and abroad which permit CNN to report live from virtually anywhere in the world. The affiliate arrangements, from which CNN derives substantial news coverage, are generally represented by contracts having terms of one or more years. In addition, news is obtained through wire news services, television news services and from free-lance reporters and camera crews. CNN is also a member, together with other news reporting companies, of various news pools including the White House pool which, under certain conditions, provides coverage of Presidential activities and White House events. Headline News is a 24-hour per day cable television news service launched in December 1981 which uses a concise, fast-paced format to provide constantly updated half-hour newscasts. Although Headline News has its own studio and transmission facilities, it utilizes CNN's newsgathering operations for the accumulation of its own news stories. Revenues for CNN and Headline News are derived from the sale of advertising time and subscription sales of the services to cable system operators, broadcasters, hotels and other clients as well as from distribution of the service in the over-the-air markets. See "Entertainment -- Entertainment Networks -- Domestic" for a discussion of the effects of the items affecting the sale of advertising time. The programming of CNN and Headline News is transmitted via satellite to local cable systems and others which have contracted directly with CNN to obtain these news program services. The fee structure is based upon (i) the level of carriage on a cable system on which the program is retransmitted and (ii) the penetration of the Company's other programming services on the cable system, subject to a discount based upon the number of subscribers. INTERNATIONAL CNN International is a 24-hour per day television news service consisting of programming produced by CNN and Headline News, as well as original programming, which was distributed to cable systems, broadcasters, hotels and other businesses on a network of 10 satellites outside the United States at December 31, 1993. Subject to government and regulatory approval, at December 31, 1993 CNN International was available in over 200 countries and territories on five continents. CNN International is marketed by a wholly-owned subsidiary of the Company throughout Europe, large portions of Africa and the Middle East, the Pacific Rim and Central and South America. 5 7 CNN International derives its revenues primarily from fees charged to cable operators based on the number of subscribers and the level of carriage, fees paid by other users (principally hotels and embassies) of the CNN International signal, the sale of advertising time, and fees charged to international over-the-air television stations for the use of the CNN International signal. COMPETITION CNN and Headline News compete nationally and CNN International competes internationally with other cable program services for distribution to viewers, and compete for viewers with other forms of programming provided to cable subscribers, such as broadcast networks and local over-the-air television stations, with home video viewership, newspapers, news magazines, movie theaters and all other forms of audio/visual entertainment, news and information services. For other factors relating to competition, see "Business Segments -- Entertainment -- Competition." OTHER BUSINESSES In addition to its Entertainment and News Segments, the Company owns or has an interest in a number of other businesses, among them ownership of professional sports teams. THE ATLANTA BRAVES In January 1976, the Company acquired the Braves, a major league baseball club, through a wholly-owned subsidiary, Atlanta National League Baseball Club, Inc. ("ANLBC"). In addition to the Braves, ANLBC operates minor league farm clubs in Richmond, Virginia; Greenville, South Carolina; and Macon, Georgia. ANLBC also operates rookie league clubs in West Palm Beach, Florida and Pulaski, Virginia, and utilizes facilities under player development contracts in Durham, North Carolina and Idaho Falls, Idaho. The Braves lease office, locker room and storage space and play all home games in the Atlanta-Fulton County Stadium in Atlanta, Georgia. ANLBC is a member of the National League of Professional Baseball Clubs (the "National League"). ANLBC receives a pro-rata distribution of revenues generated through contracts negotiated with television networks, certain other broadcast revenues and a portion of gate receipts from games away from home. During 1993, the Office of the Commissioner of Baseball entered into a new agreement with Entertainment and Sports Programming Network ("ESPN") covering the 1994 through 1999 seasons and entered into an agreement to form a joint venture with American Broadcasting Company ("ABC") and National Broadcasting Company ("NBC") to telecast certain major league games over six seasons beginning in 1994. Due to National League expansion, a reduction in the annual rights fees to be paid by ESPN, and the revenue sharing provisions contained in the joint venture agreement with ABC and NBC, ANLBC is uncertain as to whether its future pro-rata share of revenues related to these agreements will equal or exceed its 1993 pro-rata revenues from the prior Columbia Broadcasting System ("CBS") and ESPN agreements. ANLBC is subject to payment of ongoing assessments and dues to the National League and to compliance with the constitution and bylaws of the National League, as the same may be modified from time to time by the membership, as well as with rules promulgated by the Commissioner of Baseball. These rules include standards of conduct for players and front office personnel; methods of operation; procedures for drafting new players and for purchasing, selling and trading player contracts; rules for implementing disciplinary action relative to players, coaches and front office personnel; and certain financial requirements. In January 1985, an agreement was reached between ANLBC and the Commissioner of Baseball relative to the nationwide television exposure afforded the telecasts of the Braves games on TBS SuperStation. The agreement, extended through the 1993 season, requires the Company to make rights fee payments into the Major League Central Fund for equal distribution to all major league baseball clubs including the Braves. In exchange for these fees, the Commissioner of Baseball, among other things, will not seek to prohibit the telecast of a specified number of Braves games on TBS SuperStation and the accompanying nation-wide satellite distribution of the TBS SuperStation signal by common carrier. TBS SuperStation expects to televise 6 8 approximately 120 Braves games during 1994. Also, SportSouth Network, Ltd., an unconsolidated entity in which the Company holds a 44% interest, intends to telecast 34 games in 1994. The baseball players under contract with clubs belonging to the National League or to the American League of Professional Baseball Clubs (collectively, the "Major Leagues") are represented for collective bargaining purposes by the Major League Baseball Players' Association (the "Baseball Players' Association"). On March 19, 1990, the Major Leagues and the Baseball Players' Association agreed to a collective bargaining agreement to be in effect until December 31, 1993. Under the terms of that agreement, once a player was drafted and executed a contract with a club, the club retained exclusive rights to that player until he had completed six years of Major League service. At the conclusion of this period, if the club and the player could not reach agreement as to the terms of his contract, the player became a free agent and could negotiate and enter into a contract with another club. The club losing a free agent to another club was entitled to compensation for such loss only in the form of additional amateur draft rights. The agreement also allowed for all players with three years of Major League service and 17% of players with between two and three years of Major League service to enter into salary arbitration. The opportunity for "free agent" status and the players' rights to salary arbitration have resulted in increased payroll cost for the major league clubs, including the Braves. The agreement specifies that either the Major Leagues or the Baseball Players' Association could reopen for negotiation certain provisions of the agreement, specifically minimum salary levels, salary arbitration and free agency issues, by providing written notice at least 30 days prior to January 10, 1993. In December 1992, the Major Leagues reopened the collective bargaining agreement. At the present time, there is no agreement between the Major Leagues and the Baseball Players' Association and, as a consequence, either party has the right to take concerted action (i.e., a lock-out by the Major Leagues or a strike by the Baseball Players' Association). THE ATLANTA HAWKS The Company, through Hawks Basketball, Inc., a wholly-owned subsidiary of the Company, has a 96% limited partnership interest in the Atlanta Hawks, L.P. (the "Hawks"), a member of the NBA. The Hawks play their home games in the 16,300-seat Omni Coliseum in Atlanta, Georgia, which is operated by a wholly- owned subsidiary of the Company. Professional basketball is organized in a manner similar to professional baseball, except that there is presently only one league and basketball clubs do not share in gate receipts from games away from home. The NBA, through its constitution, has established rules governing club operations, including drafting of players and trading player contracts. A portion of the Hawks' revenues are from a pro-rata share of network broadcast fees derived by the NBA, pursuant to its four-year broadcast rights agreement awarded to NBC in 1989. A portion of the Hawks' future revenues will be derived from a pro-rata share of the network broadcast rights fees derived by the NBA, pursuant to a new four-year broadcast rights fee agreement covering the 1994-1995 through 1997-1998 seasons awarded to NBC in 1993. The NBA has a separate agreement with the Company to televise a different package of games. On November 29, 1989, the Company and the NBA entered into an agreement for TNT to televise a certain number of regular season and playoff games in each of the 1990-91 through 1993-94 seasons, in return for rights fees aggregating $275 million. Pursuant to an agreement between the Company and the Hawks dated June 1, 1978, as supplemented, TBS SuperStation has the right to telecast some portion of the regular and post-season Hawks' games, as determined by the NBA, not otherwise subject to agreements between the NBA and other broadcasters. Pursuant to this agreement, TBS SuperStation televised 25 regular season Hawks' games during the 1990-91 season and 30 regular season Hawks' games during both the 1991-92 and the 1992-93 seasons. In addition, TBS SuperStation intends to broadcast up to 30 regular season Hawks' games during the 1993-94 season. On September 22, 1993, the Company and the NBA entered into an agreement whereby both TNT and TBS SuperStation will telecast a certain number of regular season and playoff games in each of the 1994-1995 through 1997-1998 seasons in return for rights fees aggregating 7 9 $352 million plus a share of the advertising revenues generated in excess of specified amounts. As a result of entering into this contract, TBS SuperStation will discontinue its telecast of Hawks' games after completion of the 1993-1994 season. NBA players are represented for collective bargaining purposes by the National Basketball Players' Association (the "NBPA"). During June 1988, the NBA and the NBPA agreed in principle to a new six-year collective bargaining agreement, that, among other things, reduced the NBA draft to three rounds for the 1988-89 season (two rounds in subsequent years), continued the salary cap which ties a team's payroll to the league's gross revenues, as defined, and altered free agency guidelines regarding the right of first refusal. A player may, under certain circumstances, become a total free agent upon termination of his contract. SPORTSOUTH NETWORK In May 1990, Turner Sports Programming, Inc. ("TSPI"), a wholly-owned subsidiary of the Company, entered into an agreement with LMC Southeast Sports, Inc. (formerly TCI Southeast Sports, Inc.) and Scripps Howard Production, Inc. to form SportSouth Network, Ltd. ("SportSouth"). SportSouth and Wometco Cable Corporation ("Wometco") entered into a separate agreement whereby Wometco agreed to carry SportSouth Network on certain of its cable systems in exchange for a future partnership interest in SportSouth, subject to the occurrence of certain events. SportSouth Network, a regional sports network serving the Southeast United States, was launched in August 1990. As of December 31, 1993, TSPI had a 44% interest in the partnership. SportSouth Network programming includes Braves baseball, Hawks basketball and various programs from Prime Networks, a national service offering sports programming to affiliated sports networks, cable operators and home satellite dish owners. SportSouth's revenues are principally derived from the sale of advertising time and the sale of its service to cable operators. At December 31, 1993, SportSouth Network served approximately 4 million U.S. television households. n-tv The Company acquired a 27.5% interest in n-tv in March 1993. n-tv is a 24-hour per day German language news network currently reaching 17 million homes in Germany and parts of Austria and Switzerland, primarily via cable systems. Like TBS SuperStation in the United States, n-tv relies principally on advertising revenues and receives no compensation for its signal from those cable systems. The studio and offices of n-tv are located in the former Eastern Berlin. OTHER The Company's corporate and news operations are headquartered in CNN Center, a multi-use office, retail and hotel complex in Atlanta, Georgia. The Airport Channel is a CNN produced service that provides newscasts to travelers at airports across the United States. Through World Championship Wrestling ("WCW"), the Company produces wrestling programming for TBS SuperStation, the domestic syndication markets, and pay-per-view television. It also stages live wrestling events. REGULATION BROADCAST REGULATION Television broadcasting is subject to the jurisdiction of the Federal Communications Commission (the "FCC" or the "Commission") under the Communications Act of 1934, as amended (the "Communications Act"). Among other things, FCC regulations govern the issuance, term, renewal and transfer of licenses which must be obtained by persons to operate any television station. The current broadcast license of TBS SuperStation was renewed on April 15, 1992 and will expire on April 1, 1997. In addition, FCC regulations govern certain programming practices. On June 12, 1992, the FCC released a Notice of Proposed Rulemaking under which it proposes to re-examine current regulations and ownership restrictions on television broadcasters. Among other things, the 8 10 FCC is proposing liberalizing the number of television stations a single entity may own or altering the rule that currently prohibits an entity from owning more than one station in a local market. Any regulatory change, if adopted, could affect the Atlanta and national markets in which the Company operates. The Company at this time cannot predict the outcome of this proceeding or the overall effect it may have. CABLE REGULATION Cable television systems are regulated by municipalities or other local government authorities. Municipalities generally have the jurisdiction to grant and to review the transfer of franchises, to review rates charged to subscribers, and to require public, educational, governmental or leased-access channels, except to the extent that such jurisdiction is preempted by federal law. Any such rate regulation or other franchise conditions could place downward pressure on subscriber fees earned by the Company, and such regulatory carriage requirements could adversely affect the number of channels available to carry the Company's networks. On October 5, 1992, the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Act") became law. The principal provisions of the 1992 Act that may affect the Company's operations are discussed below. The Company cannot predict the full effect that the 1992 Act will have on its operations. Rate Regulation Section 623 of the Communications Act, as amended by the 1992 Act, establishes a two-tier rate structure applicable to systems not found to be subject to "effective competition" as defined by the statute. Rates for a required "basic service tier" are subject to regulation by practically every community. Rates for cable programming services other than those carried on the basic tier are subject to regulation if, upon complaint, the FCC finds that such rates are "unreasonable." Programming offered by a cable operator on a per-channel or per-program basis, however, is exempt from rate regulation. On April 1, 1993, the FCC adopted implementation regulations for Section 623. The text of its Report and Order was released on May 3, 1993. The FCC adopted a benchmark approach to rate regulation. Rates above the benchmark would be presumed to be unreasonable. Once established, cable operators could adjust their rates based on appropriate factors and could pass through certain costs to customers, including increased programming costs. On February 22, 1994, the Commission adopted further regulations. Among other things, the additional regulations will govern the offering of bona fide "a la carte" channels that are exempted from rate regulation. The Commission also adopted a methodology for determining rates when channels are added to or deleted from regulated tiers. These regulations may adversely affect the Company's ability to sell its existing or new networks to cable customers and/or may adversely affect the prices the Company may charge for its services, although at this time the Company cannot predict their full effect on its operations. On April 5, 1993, the FCC also froze rates for cable services subject to regulation under the 1992 Act for 120 days. On June 11, 1993, the FCC deferred the implementation of rate regulation from June 21, 1993 to October 1, 1993, and extended the freeze on rates for cable services subject to regulation from August 4, 1993 to November 15, 1993. On November 10, 1993, the Commission further extended the freeze until February 15, 1994, and on February 8, 1994, extended the expiration date of the freeze until May 15, 1994. On July 27, 1993, the FCC moved the effective date of rate regulation back to September 1, 1993. Additionally, among other things, the FCC permitted cable operators to structure rates and service offerings up until September 1, 1993 without prior notice to subscribers. On July 16, 1993, the FCC issued a Notice of Proposed Rulemaking to add the regulatory requirements to govern cost-of-service showings that cable operators may submit under this provision to justify rates above the benchmarks. On February 22, 1994, the Commission adopted interim rules to govern the cost of service proceedings. The constitutionality of these provisions has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld the constitutionality of these provisions. An appeal of that decision is pending in the U.S. Court of Appeals for the 9 11 District of Columbia Circuit. Appeals of the Commission's implementing regulations have also been taken to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the ultimate outcome of the litigation. Must Carry and Retransmission Consent The 1992 Act contains provisions that would require cable television operators to devote up to one-third of their channel capacity to the carriage of local broadcast stations and provide certain channel position rights to the local broadcast stations. The 1992 Act also includes provisions governing retransmission of broadcast signals by cable systems, whereby retransmission of broadcast signals would require the broadcaster's consent and provides each local broadcaster the right to make an election between must carry and retransmission consent. The retransmission consent provisions of the 1992 Act became effective on October 5, 1993. On March 11, 1993, the Commission adopted a Report and Order implementing these provisions. The provisions could affect the ability and willingness of cable systems to carry cable programming services. The Company has filed litigation challenging the provision as unconstitutional, which is pending in the United States Supreme Court (see "Legal Proceedings -- Turner Broadcasting System, Inc. v. Federal Communications Commission and the United States of America"). Program Access On April 1, 1993, the Commission issued regulations implementing a provision that, among other things, makes it unlawful for a cable network, in which a cable operator has an attributable interest, to engage in certain unfair methods of competition or unfair or deceptive acts or practices, the purpose and effect of which is to hinder significantly or prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to cable subscribers or consumers. The provisions contain an exemption for any contract that grants exclusive distribution rights to a person with respect to satellite cable programming or that was entered into on or before June 1, 1990. While the Company cannot predict the regulations' full effect on its operations, they may affect the rates charged by the Company's cable programming services to its customers and could affect the terms and conditions of the contracts between the Company and its customers. The constitutionality of this provision has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld this provision. An appeal of that decision is pending in the United States Court of Appeals for the District of Columbia Circuit. Appeals of the Commission's implementing regulations have also been taken to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the ultimate outcome of the litigation. Regulation of Carriage Agreements The 1992 Act contains a provision that requires the FCC to establish regulations governing program carriage agreements and related practices between cable operators and video programming vendors, including provisions to prevent the cable operator from requiring a financial interest in a program service as a condition of carriage and provisions designed to prohibit a cable operator from coercing a video programming vendor to provide exclusive rights as a condition of carriage. On October 22, 1993, the Commission issued regulations implementing this provision. The Company at this time cannot predict the effect of this provision on its operations. The constitutionality of this provision has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld the constitutionality of this provision. An appeal of that decision is pending in the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the outcome of the litigation. 10 12 Ownership Litigation Section 11 of the 1992 Act directed the Commission to prescribe rules and regulations establishing limits on the number of cable subscribers a person is authorized to receive by cable systems owned by such person and the number of channels that can be occupied by video programmers in which a cable operator has an attributable interest. The Commission must also consider the necessity of imposing limitations on the degree to which multichannel video programming distributors may engage in the creation or production of video programming. On December 28, 1992, the FCC issued a Notice of Proposed Rulemaking and Notice of Inquiry with respect to these provisions. On October 22, 1993, the FCC adopted a Second Report and Order that established a 40% limit on the number of channels that may be occupied by programming services in which the particular cable operator has an attributable interest. The Company is subject to this provision. The FCC has also established a national limit of 30% on the number of homes passed that any one person can reach through cable systems owned by such person, but stayed the implementation of that provision pending judicial review of its constitutionality. Petitions for reconsideration are pending. The Company cannot at this time predict the effect of this provision or of these proposals on its operations. The constitutionality of these provisions has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court found the national limit on homes passed unconstitutional, but upheld the constitutionality of the channel capacity limits. An appeal of that decision is currently pending in the United States Court of Appeals for the District of Columbia Circuit. Appeals of the Commission's implementing regulations have also been taken to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the ultimate outcome of the litigation. Sports Migration The 1992 Act directs the FCC to submit an interim report by July 1, 1993 and a final report by July 1, 1994 to Congress on the migration of sports programming from the broadcast networks to cable networks and cable pay-per-view. The interim report was submitted on June 24, 1993. CABLE NETWORK CROSS-OWNERSHIP Under current FCC regulations, television broadcast networks are not permitted to own cable systems. On June 17, 1992, the FCC voted to modify its regulations to permit television broadcast networks to own cable systems so long as a network's owned systems have less than 10% of cable subscribers nationally and have less than 50% of the subscribers in an individual local market. The Company cannot predict the effect, if any, of this change on its operations. COPYRIGHT LICENSE SYSTEM The Copyright Act provides for the grant to cable systems of compulsory licenses for carriage of distant, non-network copyrighted programming (as typically originally transmitted by a broadcast television station). The Copyright Act also provides for payments of royalty fees by the cable systems for the benefit of copyright owners or licensors, which fees are payable for the privilege of retransmitting such programming to their subscribers. Under the Copyright Act, the amount of such royalty payments is generally based upon a formula utilizing the amount of the system's semi-annual gross receipts and the number of distant non-network television signals carried by the system. Therefore, cable systems that carry TBS SuperStation must contribute to the Copyright Office for distribution. However, no royalties are paid by cable systems in connection with their carriage of TNT, the Cartoon Network, CNN or Headline News. There have been several legislative initiatives in Congress during the past several years to alter the present compulsory copyright license system provided under the Copyright Act, but none have been adopted into law. In October 1988, the FCC recommended that Congress phase out the compulsory license. The FCC, in its July 1990 Report to Congress, also proposed that Congress should repeal the compulsory copyright license 11 13 under certain circumstances. The Company cannot predict the ultimate impact on the competitive position of TBS SuperStation if legislation repealing the compulsory license were enacted. SATELLITE AND MICROWAVE REGULATION The Company operates various satellite transmission and reception equipment in the vicinity of its offices in Atlanta, at various bureau locations and at the sites of special events such as sporting events and breaking news sites. These radio transmission facilities are required to be licensed by the FCC prior to use and their operation must comply with applicable FCC regulations. EMPLOYEES At December 31, 1993, the Company and its wholly-owned subsidiaries had 5,317 full-time employees. In April 1987, CNN received a petition for a representation election filed with the National Labor Relations Board ("NLRB") by Local 11 of National Association of Broadcast Employees and Technicians ("NABET"). NABET sought a representation election with respect to 61 production employees in CNN's New York news bureau. Although the NLRB conducted a hearing in 1987 and 1988, it did not render a decision as to the proper scope of the voting unit until January 29, 1993. Pursuant to the NLRB's decision, 88 employees would have been in the voting unit. The NLRB directed that an election be conducted for such unit at a date to be determined by it. Based on the substantial changes in the unit and the business operation during the six years since the petition was initially filed, CNN expected to file a Request for Review with the NLRB in Washington, D.C. However, on April 8, 1993, NABET withdrew its petition for election, bringing this matter to a close. TEC and certain of its subsidiaries are signatories to collective bargaining agreements with two unions. These agreements cover approximately 45 employees of TEC and its affected subsidiaries and expire in 1994. In addition, certain subsidiaries of the Company are signatories to one or more of the following collective bargaining agreements: the Writers Guild of America Basic Agreement, the Directors Guild of America Basic Agreement, the Screen Actors Guild Basic Agreement, the American Federation of Television and Radio Artists Network Television Code, the International Alliance of Theatrical Stage Employees Agreement, the American Federation of Musicians Basic Agreement, the Union of British Columbia Performers Agreement, the British Actors Equity Association Agreement and/or a member of the Alliance of the Motion Picture and Television Producers. ITEM 2. PROPERTIES The Company owns CNN Center, a hotel and office complex in Atlanta, Georgia, which houses the Company's corporate offices, the operations of CNN, Headline News and CNN International and the operations of certain other subsidiaries. CNN Center Ventures entered into a revolving credit agreement, as subsequently amended, under which it could borrow up to $125 million with borrowings to be guaranteed by the Company and secured by a first mortgage lien on CNN Center and the adjacent parking deck facility. The $40 million balance outstanding at December 31, 1992 was paid off in January 1993. The agreement was terminated in December 1993. The Company subleases until December 27, 2043, a parking facility next to the complex with approximately 2,000 parking spaces. The Company also manages and operates the Omni Coliseum pursuant to an operating agreement which expires in October 2002. The agreement requires the Company to apply certain revenues generated by the operation of the Omni Coliseum toward payment of the revenue bonds issued to finance the acquisition, construction and equipping of the Omni Coliseum. The Company owns buildings with approximately 205,000 square feet on approximately 32 acres of land in Atlanta, Georgia. The primary building currently houses the studios and offices of TBS SuperStation, TNT and the Cartoon Network. In addition, adjacent to the primary building are twelve seven-meter, two ten-meter, two eleven-meter and one fifteen-meter earth stations used to transmit and monitor the signals of TBS SuperStation, TNT, the Cartoon Network, CNN and Headline News to various satellites and to receive 12 14 satellite feeds for use by CNN and Headline News, and five smaller operative antennas for receiving backhaul from various satellites. The Company also owns a building of approximately 85,000 square feet in Atlanta, Georgia. A portion of the building is used for general purposes and the remainder is available for lease to unaffiliated third parties. The Company leases office or studio space in major cities around the United States and abroad which is used by the Company for its news bureaus, for sales of advertising time, for cable sales and marketing, for program production operations, for film servicing operations and for program syndication operations. The Hawks currently play their home games and occupy office, locker room and storage space at the Omni Coliseum. The space is rented from a wholly-owned subsidiary of the Company which operates the Omni Coliseum for an amount equal to 10% of net gate receipts. ANLBC leases office, locker room and storage space (aggregating approximately 70,000 square feet), and the Braves play all home games in the Atlanta-Fulton County Stadium pursuant to a lease running through December 31, 1994. ANLBC has the option to extend the agreement through December 31, 1996. This lease gives ANLBC priority in the scheduling of baseball games, exclusive year-round concession rights in the stadium and the non-exclusive right to use the stadium for other events. Lease payments are specified percentages of gate receipts and concession sales with a minimum of $650,000 per year. The Braves also lease facilities for use by its farm clubs in Richmond, Virginia; Greenville, South Carolina; Macon, Georgia and its spring training facility in West Palm Beach, Florida. ITEM 3. LEGAL PROCEEDINGS LITIGATION Storer Cable Communications, et al. v. The City of Montgomery, Alabama, et al. On September 6, 1990, Storer Cable Communications ("Storer"), ESPN, Inc. and Satellite Services, Inc. commenced an action in the United States District Court for the Middle District of Alabama, Northern Division, against the City of Montgomery, Alabama, and Emory Folmar, in his capacity as Mayor of Montgomery. In their Complaint, Plaintiffs claim that City of Montgomery Ordinance No. 9-90, which attempts to regulate the construction, operation and control of cable television systems in Montgomery, and City of Montgomery Ordinance No. 48-90, which regulates competition among cable operators and franchisees in Montgomery, are unconstitutional and violate various other provisions of federal and state law. The Plaintiffs seek declaratory and injunctive relief, compensatory damages in excess of $50,000 and attorney's fees. On September 7, 1990, TNT moved to intervene in this action. The claims asserted by TNT are similar to those asserted by Plaintiffs in the action although TNT has only challenged the legality of Ordinance No. 48-90. Additionally, TNT's Complaint-in-Intervention adds Montgomery Cablevision and Entertainment, Inc. ("MCE") as a defendant. On October 5, 1990, the State of Alabama moved to intervene in the action. Additionally, on October 10, 1990, MCE also moved to intervene in the action. MCE's proposed Answer-in-Intervention and Counterclaim alleges that Tele-Communications, Inc., Storer, Mile Hi Cablevision, Inc. (d/b/a Satellite Services, Inc.), the Company, TNT, Turner Cable Network Sales, Inc. ("TCNS") and ESPN, Inc. have violated the Sherman Act by, among other things, entering into exclusive distribution arrangements for the provision of programming in the Montgomery area. In its Counterclaim, MCE seeks declaratory and injunctive relief, an undisclosed amount of compensatory and punitive damages and attorney's fees. On November 27, 1990, the Court granted MCE's Motion to Intervene. On December 19, 1990, the Court granted TNT's and the State of Alabama's Motion to Intervene and, at the same time, the Court stayed any action on MCE's Counterclaim until the main claim is decided. On January 4, 1991, TNT filed a Motion 13 15 for Summary Judgment on all counts. On February 25, 1991, all Defendants responded and filed Cross Motions for Summary Judgment. Oral argument on these motions was heard on April 11, 1991. On October 9, 1992, the Court entered an Order on all outstanding Motions for Summary Judgment. In its Order, the Court struck portions of Ordinance 48-90 and Ordinance 9-90, and denied summary judgment as to the remaining aspects of the two ordinances. On October 23, 1992, the Court lifted the stay on MCE's Counterclaim, which was amended on December 15, 1992. On February 4, 1993, the Company, TNT and TCNS filed a Motion to Dismiss the Counterclaim and Amended Counterclaim for failure to state a claim. On June 17, 1993, the Court entered an order denying the Motion of the Company, TNT and TCNS to dismiss Montgomery Cablevision and Entertainment, Inc.'s Counterclaim and Amended Counterclaim for failure to state a claim. On or about September 24, 1993 this action was settled with no payment by or adverse effect on the Company. On September 27, 1993, the Court vacated its June 17, 1993 Order. A Joint Stipulation of Dismissal was filed with the Court on October 20, 1993 and the litigation was dismissed with prejudice by Order dated October 21, 1993. United States of America v. Cable News Network, Inc. and Turner Broadcasting System, Inc. In October and November of 1990, CNN was involved in investigating and reporting a story concerning potential government audio taping of telephone calls made by General Manuel Noriega from his cell in the Miami Correctional Center, including the taping of conversations with his attorneys and defense team. CNN obtained copies of some of the alleged tapings and telecast segments thereof. Judge William M. Hoeveler, United States District Court for the Southern District of Florida, entered orders on November 8, 1990 and November 9, 1990 which temporarily prohibited the telecast of Noriega's privileged attorney-client conversations. Judge Hoeveler has appointed a special prosecutor, Robert F. Dunlap, to investigate whether CNN violated his Orders in a telecast on November 9, 1990, and to prepare an application for an Order to Show Cause "why those entities and individuals responsible for" the telecast should not be held in contempt of the Court's Orders. To date, no Order to Show Cause has been presented, contempt proceedings have not been initiated against CNN or any other entities or individuals involved. On January 15, 1993 CNN was advised by Special Prosecutor Dunlap that it was a target of a grand jury investigation into these alleged contempts. CNN has responded to grand jury subpoenas issued at that time. CNN has been informed by the court that criminal information alleging contempt charges may be presented at the end of March 1994, at which time the Company will enter a plea and a date for trial will be selected. Fines and/or penalties of an undetermined amount could be imposed against CNN as a result of these contempt proceedings. CNN denies it telecast any privileged conversations and therefore denies that it violated or intended to violate the Court Orders. CNN intends to vigorously defend the contempt proceedings. Turner Broadcasting System, Inc. v. Federal Communications Commission and The United States of America On October 5, 1992, the Company filed a lawsuit in the United States District Court for the District of Columbia challenging the provisions of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Act") that would require cable television operators to devote up to one-third of their channel capacity to the carriage of local broadcast stations and provide certain channel positioning rights to local broadcast stations (see "Business -- Regulation -- Cable Regulation -- Must Carry and Retransmission Consent"). The Company's complaint alleges that these provisions violate the First Amendment of the United States Constitution. The Company cannot predict the outcome of the litigation at this time. Under a provision of the 1992 Act, the case was heard by a three-judge court. On April 8, 1993, the Court upheld the constitutionality of these provisions by a 2-1 vote. On May 3, 1993, the Company filed its Notice of Appeal of that decision to the United States Supreme Court. The Company filed its Jurisdictional Statement with the Supreme Court on July 2, 1993. On September 28, 1993, the Supreme Court noted probable jurisdiction and heard oral argument on this case on January 12, 1994. The parties are awaiting a decision by the Supreme Court. 14 16 Slovitt v. Turner Broadcasting System, Inc. et al, and Farrell Brokerage, Inc. Pension Plan and Farrell Brokerage, Inc. Profit Sharing v. Turner Broadcasting System, Inc. et al On April 14, 1993, shareholder J. Slovitt filed suit in the Superior Court of Fulton County, Georgia, and shareholders Farrell Brokerage, Inc. Pension Plan and Farrell Brokerage, Inc. Profit Sharing filed suit in the Supreme Court of the State of New York, County of New York. Each of these shareholders (the "Plaintiffs") had the same legal counsel and purported to bring a class action on behalf of all minority common shareholders of the Company who are similarly situated to the Plaintiffs. The Defendants included the Company, all directors of the Company, Time Warner, Inc. and Tele-Communications, Inc. (the "Defendants"). Each class action made identical allegations that the Defendants dominate and control the Company through their stock ownership, directorships and management positions and have wrongfully utilized these positions to deprive the Company's minority common shareholders of their investment. The Plaintiff's allegations were allegedly based on public reports, including newspaper articles. The Plaintiffs sought class action status, injunctive relief, unspecified damages and a constructive trust for the benefit of class members. The case filed by shareholder J. Slovitt was dismissed in December 1993. The Plaintiffs in the Farrell suit initiated proceedings in March 1994 to dismiss the suit. MUSIC LICENSES In the television industry, programming is usually obtained from suppliers lacking the necessary license to perform publicly the music associated with the programming. Those performance rights are traditionally secured by obtaining blanket licenses to the entire repertories. Such blanket licenses are held by music performance societies, principally the American Society of Composers, Authors and Publishers ("ASCAP") and Broadcast Music, Inc. ("BMI"). As a local television station, TBS SuperStation has music licenses with both ASCAP and BMI and has paid monies pursuant to those licenses. In 1986, in connection with an audit for the years 1981 and 1982, ASCAP indicated that it believed the Company owed an additional $800,000 under that license. The Company denied that it had any additional liability, and the matter has remained in negotiation. In January 1989, ASCAP threatened to pursue the same demand for additional payments for the entire period 1981-88 and contended that the additional payment would represent approximately $6 million. The Company again denied any additional liability. The matter, if litigated, would raise novel and unresolved legal questions. In September 1988, the Company made formal applications for licenses from ASCAP and BMI for all of its programming services. The Company currently has a license with BMI. Under an antitrust consent decree, if any entity seeking a license from ASCAP cannot reach agreement with ASCAP as to the fee associated with that license, it is entitled to ask the United States District Court for the Southern District of New York to establish such a fee. On January 13, 1989, the Company filed an application asking that a fee be set for the period commencing October 3, 1988. The Court has set interim fees as a result of the Company's application. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS By unanimous written consent dated as of December 15, 1993, the holders of the Company's Class C Preferred Stock (12,396,976 shares) approved (i) the issuance of an aggregate of 250,000 shares of the Company's Class B Common Stock to the five principals of Castle Rock Entertainment in connection with the acquisition of Castle Rock by the Company and the employment of such principals following such acquisition and (ii) the issuance of an aggregate of 52,500 shares of the Company's Class B Common Stock to three of the Company's executive officers in connection with the execution by such officers of employment agreements with the Company. 15 17 EXECUTIVE OFFICERS OF THE COMPANY The following table lists the executive officers of the Company, their ages and their positions as of February 28, 1994*:
NAME AGE POSITION - --------------------------- --- ---------------------------------------------------- R. E. Turner............... 55 Chairman of the Board of Directors and President Christian L. Becken........ 40 Vice President and Treasurer William S. Ghegan.......... 45 Vice President, Controller and Chief Accounting Officer William H. Grumbles**...... 44 Vice President -- Worldwide Distribution Elahe Hessamfar............ 40 Vice President and Chief Information Officer W. Thomas Johnson.......... 52 Director and Vice President -- News Steven W. Korn............. 40 Vice President, General Counsel and Secretary Terence F. McGuirk......... 42 Director and Executive Vice President Wayne H. Pace.............. 47 Vice President -- Finance and Chief Financial Officer Scott M. Sassa............. 35 Director and Vice President -- Entertainment Networks William M. Shaw............ 49 Vice President -- Administration Julia W. Sprunt**.......... 40 Vice President -- Marketing and Communications
- --------------- * Effective January 2, 1994, John M. Barbera resigned his position as Vice President -- Sales. Effective January 31, 1994, Paul D. Beckham resigned his position as Vice President -- Cable Sales. ** William H. Grumbles and Julia W. Sprunt are married to each other. The executive officers of the Company are elected by the Board of Directors to serve until their successors are elected and qualified. The following is a brief description of the business experience of the executive officers of the Company for at least the past five years. R. E. Turner has been Chairman of the Board, President and controlling shareholder of the Company since 1970. Christian L. Becken joined the Company in December 1983 as Vice President of Financial Planning and was promoted to Vice President and Treasurer in 1986. William S. Ghegan, who joined the Company as Corporate Controller in 1985, was promoted to Vice President, Controller and Chief Accounting Officer in 1987. Formerly, he was a Senior Manager with Price Waterhouse, an international accounting firm, from 1979 to 1985. William H. Grumbles, who joined the Company in 1989 as Executive Vice President of TCNS, was promoted to President of Turner International, Inc. in 1991 and Vice President -- International Sales of the Company in 1992. In 1993, his title became Vice President -- Worldwide Distribution. Previously, he served as Vice President -- Affiliate Relations for HBO. Elahe Hessamfar joined the Company in 1993 as Vice President and Chief Information Officer. Previously Ms. Hessamfar was Vice President, Information Systems for PacBell Directory from 1987 until joining the Company. W. Thomas Johnson joined the Company in 1990 as Vice President -- News. He also serves as President of CNN. Previously, Mr. Johnson was Chairman of the Los Angeles Times from 1989 until joining the Company, and also Vice Chairman of the Times Mirror Company from 1987 until joining the Company. From 1980 he had served as Publisher and Chief Executive Officer of the Los Angeles Times. Steven W. Korn joined the Company in September 1983 as Assistant Vice President and Deputy General Counsel. He became Vice President in 1986, Secretary in 1987 and General Counsel in 1988. Formerly, he was an attorney with the law firm of Troutman Sanders. Terence F. McGuirk joined the Company in 1972 as an Account Executive. In 1975, he assumed the duties of Director of Cable Relations and three years later became the Director of Special Projects. He was 16 18 promoted to Vice President of the Company in 1979 and was elected as a director in 1987. Mr. McGuirk was promoted to Executive Vice President in 1990. He also serves as President of the Company's sports division. Wayne H. Pace joined the Company in July 1993 as Vice President -- Finance and Chief Financial Officer. From 1981 until July 1993, he was a partner with Price Waterhouse, an international accounting firm. Scott M. Sassa rejoined the Company in 1988 as Executive Vice President of TNT, Inc. He became Vice President -- Entertainment Networks in 1990 and was elected a director in 1992. Before rejoining the Company, Mr. Sassa served as Vice President of New Business Development of Ohlmeyer Communications Company in 1987 and prior to that as Vice President of Network Management at Fox Broadcasting Company. William M. Shaw joined the Company in 1981 as Director of Personnel and was promoted to Vice President -- Personnel in 1982. He was promoted to Vice President -- Administration in 1991. Previously, he served as Director of Personnel at Siemens-Allis Corp. Julia W. Sprunt, who joined the Company in 1981 as a Marketing Manager of TCNS, became Director -- Southeast Region of TCNS in 1985. She was promoted to Vice President -- Western Region of TCNS in 1986 and became Senior Vice President of TCNS in 1987. Ms. Sprunt was promoted to Vice President -- Marketing of TBS SuperStation in 1989 before becoming Vice President -- Corporate Marketing and Communications in 1990. 17 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information regarding the principal markets on which the Company's two classes of common stock are traded, the high and low sales price for the stock on the American Stock Exchange for each quarterly period during the past two years, the Company's dividend policy and the approximate number of holders of each class of the common stock at December 31, 1993, is included under the caption entitled "Investor Information" on page 54 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA A summary of selected financial data for the Company for the five years ended December 31, 1993 is included under the caption entitled "Selected Financial Data" on page 28 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reported consolidated revenue of approximately $1.9 billion for the year ended December 31, 1993, a 9% increase over the same period last year. Operating profit, defined as income before interest expense, interest income, income taxes, extraordinary items, and the cumulative effect of a change in accounting principle, rose 4% over 1992 to $302 million. The Company incurred a net loss of $244 million, which included a nonrecurring charge of $306 million for the cumulative effect of a change in accounting for income taxes, and $11 million in extraordinary charges, net of tax benefits, for the early termination of certain of the Company's bank credit facilities and the redemption of its convertible debt due 2004. Income before these charges and the provision for income taxes was $121 million, or a 21% increase over 1992. The consolidated financial statements and all related information included in the 1993 Annual Report to Shareholders incorporated herein by reference should be read in conjunction with the following review. See the financial statements set forth on pages 29 through 51 of the 1993 Annual Report to Shareholders, incorporated herein by reference. For a discussion of regulatory and legislative matters affecting the Company, refer to Part I -- Item 1, "Business -- Regulation." OVERVIEW The Company's present operations and future prospects are influenced by many factors, primarily the growth of the cable television industry and the economic climate both in the United States and abroad, as well as the availability of programming for its entertainment and news networks. Additionally, governmental regulation and information technology changes relating to the cable television industry also influence domestic and international prospects. Because of the Company's recent acquisition of Castle Rock and New Line, future prospects will also be influenced by the profitability of the motion picture industry. U.S. CABLE TELEVISION INDUSTRY The growth of the Company's Entertainment and News Segments is influenced by the growth of the U.S. cable industry since that medium represents the principal distribution system for TBS SuperStation, TNT, the Cartoon Network, CNN and Headline News. At the end of 1993, homes subscribing to cable television service in the United States reached approximately 63 million, which represented 67% of all U. S. television households and a 1% increase over 1992. Homes served by cable television are expected to grow through 1996 and are expected to represent approximately 72% of all U.S. television households by the end of that year. The growth of the Company's Entertainment and News Segments is also influenced by the channel capacity of individual cable system operators. 18 20 ECONOMIC CLIMATE The state of the U.S. economy influences the results of the Entertainment and News Segments as those segments derive a significant portion of their revenues from advertising, which is sold largely within three to nine months of airing and which, under certain conditions, can be cancelled by the buyers. Overall, domestic advertising revenues totaled $828 million in 1993, $750 million in 1992 and $662 million in 1991, representing 43%, 42% and 45%, respectively, of total revenues in those years. The impact of changes in the economy is mitigated by the fact that the Company derives a portion of its revenues from subscription fees, which are relatively resistant to short-term domestic economic factors. Domestic subscription fees from cable system operators, which totaled $502 million in 1993, $429 million in 1992 and $386 million in 1991, representing 26%, 24% and 26% of total revenues in those respective years, are generally received under contracts with three to five year terms. PROGRAMMING The Company continues to make significant investments in original, sports and licensed entertainment programming and in newsgathering capabilities to increase the viewership of its Entertainment and News Networks. The Entertainment Networks use high-profile original movies, specials and sporting events to define identity and provide a base of highly promotable programming from which to attract viewers to their entire slate of offerings. The Company has acquired programming rights to two of the most promotable sporting franchises available. Under a contract entered into in 1990, TNT telecast three pre-season and nine regular season National Football League ("NFL") games in 1993 and 1992. The Company has reached an agreement with the NFL to telecast a similar number of pre-season and regular season games each year over a four-year period beginning in 1994. Since 1989, TNT has also telecast NBA regular season and playoff games. The Company has entered into a new contract with the NBA covering the 1994-1995 through 1997-1998 seasons. Under the new contract, TNT and TBS SuperStation will telecast NBA regular season and playoff games. In addition, affiliations with sporting events such as the 1992 and 1994 Winter Olympics, telecast on TNT, and the Company's own Goodwill Games, telecast on TBS SuperStation, provide exposure on an international level. In 1990, the Company negotiated a long-term television license agreement with MGM-Pathe Communications Co. (now Metro-Goldwyn-Mayer Inc. ("MGM")) for approximately 1,000 feature films, over 300 cartoon shorts and selected television series. In December 1991, the Company acquired a 50% interest in HB Holding Co., a newly-formed joint venture. The joint venture, through a merger, acquired Hanna-Barbera, Inc. and the HB Library, which provided the Company access to a library of over 3,000 half-hours of animated programming and afforded exposure to a new facet of entertainment programming. Coupled with the 1,850 cartoon episodes in the TEC Film Library, the Company now has access to a vast source of animated programming. In October 1992, the Company used access to this programming to launch the Cartoon Network, a 24-hour per day cable program service which has revenue streams from both advertising and subscription fees. On December 22, 1993, the Company acquired all of the equity interests in Castle Rock, a motion picture and television production company, and on December 29, 1993, the Company acquired the remaining 50% interest in HB Holding Co. In addition, on January 28, 1994, the Company completed the acquisition of New Line, an independent producer and distributor of motion pictures. See Note 2 and Note 16 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders incorporated herein by reference. When combined with existing arrangements for programming and the extensive library of feature films, cartoons and televisions series, these new acquisitions continue to build core programming for the Entertainment Networks and allow for control of programming from production through various stages of distribution. The Company will continue to use this programming for new networks, such as the launch of a 24-hour satellite and cable distributed family entertainment network -- Turner Classic Movies -- during 1994. 19 21 Programming costs in the News Segment primarily relate to personnel, travel costs and satellite and communications access. CNN presently operates nine news bureaus in the United States and 19 bureaus in countries outside the United States. In the near future, the Company anticipates expanding staff and facilities internationally, increasing staff working on breaking news stories, and modifying its daily programming mix as necessary, all with the objective of increasing viewership. INTERNATIONAL While most of the Company's revenues are derived from domestic distribution of its products and services, the Company views the international market as an important source for future revenue growth. Historically, the Company has derived the majority of its international revenues from syndication and licensing to television stations, the sale of home videos of feature films from the TEC Film Library and, to a lesser degree, from theatrical release of original productions made for TNT. These operations continue to contribute an important revenue stream to the Company; in 1993 international syndication and licensing revenues (defined as broadcast fees, syndication, home video and licensing and merchandising revenues), were $149 million, representing approximately 62% of total international revenue. This is an increase of 2% over 1992. The Company believes the greatest potential for growth internationally is in the area of satellite delivered programming. Currently, CNN International is the Company's predominant programming vehicle outside the United States. CNN International is distributed via satellite primarily to cable systems, broadcasters, hotels and private satellite dish owners. Subscription levels in Europe grew from 12 million households at the end of 1991 to 45 million households by the end of 1993. CNN International's programming is generally either CNN product as viewed in the United States or in a reformatted version which conforms to retransmission restrictions imposed by certain agreements under which CNN collects international news stories from certain overseas suppliers. It also includes segments specifically produced for the international markets. Revenues, which are derived from subscriber fees, broadcast fees, and advertising sales, are principally generated from Europe. Total revenues from CNN International increased from $74 million in 1992 to $93 million in 1993. It is anticipated that these revenues will continue to increase as the Company capitalizes on the growing international reputation of CNN and the increased international opportunities to market the service, both in terms of increases in international advertising and in terms of overall growth in international television media and markets. In January 1991, the Company launched TNT Latin America, a 24-hour per day trilingual entertainment program service serving Latin America and the Caribbean via satellite. Relying largely on existing programming from the TEC Library, this service allows the user to customize the service using Spanish, Portuguese and English audio tracks and subtitles. Contracts for carriage of this service are offered by the Company's sales and marketing organizations to operators of cable systems and similar technologies. Revenues from this service, which in many areas is being marketed together with CNN's news programming, are almost entirely from subscription fees based on contracts with cable operators which specify minimum subscription levels. Revenues for TNT Latin America continue to increase with a 50% growth over 1992. In March 1993, the Company acquired a 27.5% limited partnership interest in n-tv, a 24-hour German language news channel. The partnership provides for cooperation in newsgathering, exchange of news footage and cooperative access to facilities. In April 1993, the Company launched Cartoon Network Latin America, a 24-hour per day programming service in Latin America utilizing animated programming from both the HB Library and TEC Library. In September 1993, the Company also launched TNT & Cartoon Network Europe, which consists of European versions of the Cartoon Network and TNT, originating in the United Kingdom, and distributed throughout Europe. Both of these new networks have revenue streams from advertising and subscription fees. 20 22 The Company is also committed to a 50% joint venture interest in an over-the-air television station in Moscow. Programming for this joint venture will primarily be in the Russian language and will include classic films from the TEC Library, sports and children's programming and CNN International programming. The Company is planning the launch in 1994 of a 24-hour movie and cartoon network in Asia (TNT & Cartoon Asia). Programming for this new international network will come primarily from the TEC Library and the HB Library. The Company believes international markets provide substantial opportunities for revenue growth in the future. Such growth will be significantly influenced by, among other things, competition, governmental regulation, access to satellite transmission facilities, improvements in encryption technologies, the continued growth of distribution system alternatives to over-the-air broadcast technology, the availability of effective intellectual property protection and local market economic conditions in the countries served. LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES OF CASH As part of its ongoing strategic plan, the Company has invested, and will continue to invest, significant amounts of capital for network and television programming development, filmed entertainment and programming acquisition. Historically, the Company has relied primarily on debt to finance these initiatives and as a result has maintained a high degree of financial leverage. This approach continued in 1993 enabling the Company to implement its growth plans. See Note 2, Note 5 and Note 16 of the Notes to Consolidated Financial Statements included in the 1993 Annual Report to Shareholders incorporated herein by reference. Additionally, see "Liquidity and Capital Resources -- Credit Facilities and Financing Activities." The Company expects that internally generated funds supplemented by existing credit facilities and debt that may be issued pursuant to its shelf registration filed in May 1993 will be sufficient to meet operating needs and scheduled debt maturities through the end of 1994 and beyond. Cash provided by operations for the year ended December 31, 1993, aggregated $136 million, net of cash interest payments of $138 million, payments of $75 million for accreted amounts upon redemption of the zero coupon notes due 2004 (the "Convertible Notes due 2004") completed in August 1993, and payment of debt issue costs of $16 million related to the issuance of 8 3/8% Senior Notes and the execution of the 1993 Credit Agreement, both of which occurred in July 1993. Other primary sources of cash included borrowings under the 1993 Credit Agreement of $1.225 billion and approximately $297 million of gross proceeds from the 8 3/8% Senior Notes. Cash was primarily utilized for the retirement of indebtedness, including the Convertible Notes due 2004 ($216 million, net of payments of accreted amounts) and amounts outstanding under the 1989 Credit Agreement ($710 million) and the CNN Center Ventures Credit Agreement ($40 million). In addition, the Company acquired an equity interest in and advanced funds to the German limited partnership, n-tv ($35 million), purchased the remaining 50% interest in HB Holding Co. and its subsidiaries ($243 million, net of cash) and acquired Castle Rock Entertainment ($314 million, net of cash). Cash was also used during the period for additions to property and equipment ($51 million) and payments of cash dividends ($18 million). See the Consolidated Statements of Cash Flows for details regarding sources and uses of cash, Note 2 of Notes to Consolidated Financial Statements for a detailed discussion of the acquisitions, and Note 5 of Notes to Consolidated Financial Statements for a detailed discussion of definitions, terms and restrictive covenants associated with the Company's indebtedness, all of which are included in the 1993 Annual Report to Shareholders incorporated herein by reference. CREDIT FACILITIES AND FINANCING ACTIVITIES The Company had approximately $2.3 billion of outstanding indebtedness at December 31, 1993, of which $1.2 billion was outstanding under an unsecured revolving credit facility with banks. 21 23 On July 1, 1993, the Company entered into a credit agreement (the "1993 Credit Agreement") with a group of banks pursuant to which such banks extended a $750 million unsecured revolving credit facility. On December 15, 1993, the 1993 Credit Agreement was amended, among other things, to increase the amount available for borrowing to $1.5 billion. Amounts available for borrowing or reborrowing under this revolving facility will automatically decrease by $75 million as of the last business day of the calendar quarters ending March 31, 1998, June 30, 1998, September 30, 1998, and December 31, 1998, and by $150 million as of the last business day of each quarter thereafter until December 31, 2000, at which time the revolving credit facility will terminate. Under the 1993 Credit Agreement, amounts repaid under the revolving credit facility may be reborrowed subject to borrowing availability. The amount of borrowing availability is subject to other provisions of the 1993 Credit Agreement, including requirements that (a) minimum ratios, as from time to time are in effect, of funded debt to cash flow, cash flow to interest expense and cash flow to fixed charges be maintained; and (b) there does not exist, and that such borrowing would not create, a default or event of default, as defined. Those covenants are similar to, though generally less restrictive than, those provided in the credit agreement entered into by the Company in 1989, as amended (the "1989 Credit Agreement"). Approximately $1.2 billion of the Company's indebtedness bears interest on a floating basis tied to short-term market indices. The Company has interest rate swap agreements having a total notional principal amount of $780 million with commercial banks to mitigate possible rising interest rates. The contracts have expiration dates ranging from March 1994 to March 1995. The weighted average receipt and payment rates associated with the swap agreements were 4.16% and 9.07%, respectively, at December 31, 1993 and were 4.44% and 9.80%, respectively, at December 31, 1992. The Company designates these interest rate swaps as hedges of interest rates and the differential paid or received on interest rate swaps is accrued as an adjustment to interest expense as interest rates change. The Company has exposure to credit risk, but does not anticipate nonperformance by the counterparties to these agreements. On May 6, 1993, the Company filed a registration statement with the Securities and Exchange Commission to allow the Company to offer for sale, from time to time, up to $1.1 billion of unsecured senior debt securities or unsecured senior subordinated debt securities (together, the "Debt Securities") consisting of notes, debentures or other evidence of indebtedness. The Debt Securities may be offered as a single series or as two or more separate series in amounts, at prices and on terms to be determined at the time of the offering. The Debt Securities may be sold to or through one or more agents designated from time to time. On July 8, 1993, the Company sold $300 million of 8 3/8% Senior Notes due July 1, 2013 (the "Notes") under the registration statement. The net proceeds to the Company were approximately $291 million after market and underwriting discounts. The Notes bear interest at the rate of 8 3/8% per annum payable semi- annually on January 1 and July 1 of each year, commencing January 1, 1994. The Notes are not redeemable at the option of the Company. Each holder has the right to require the Company to repurchase such holder's Notes in whole, but not in part, upon the occurrence of certain triggering events, including, without limitation, a change of control, certain restricted payments or certain consolidations, mergers, conveyances or transfers of assets, each as defined in the indenture relating to the Debt Securities. The covenants governing the Notes limit the Company's ability to incur additional funded debt by requiring the maintenance of a minimum consolidated interest coverage ratio, as defined. On July 9, 1993, the Company called for redemption of all of its Convertible Notes due 2004, of which $291 million, net of unamortized discount of $409 million, was outstanding at August 9, 1993, to be funded by the issuance of the Notes. The Convertible Notes due 2004 could have been converted into shares of Class B Common Stock, par value $0.0625 per share, at any time before the close of business on August 9, 1993, at the rate of 15 shares of Class B Common Stock for each $1,000 principal amount at maturity. All Convertible Notes due 2004 which were not converted into shares of Class B Common Stock were redeemed on August 9, 1993, at a redemption price of $415.01 in cash for each $1,000 principal amount at maturity. The price reflects accrued original issue discount at the rate of 8% compounded semiannually to the redemption date. On December 21, 1993, the Company cancelled a $125 million revolving credit agreement governed by the CNN Center Ventures Credit Agreement that was guaranteed by the Company and secured by a first mortgage lien on the CNN Center and adjacent parking deck facility. 22 24 The redemption of the Convertible Notes due 2004 and cancellation of the 1989 Credit Agreement and the CNN Center Ventures Credit Agreement resulted in an extraordinary charge of $11 million, net of approximately $6 million of tax benefits, representing the write-off of unamortized debt issue costs. Scheduled principal payments for all outstanding debt for 1994 total approximately $2 million, the majority of which relates to capital leases and other debt. On February 3, 1994, the Company sold $250 million of 7.4% Senior Notes due 2004 (the "Senior Notes") and $200 million of 8.4% Senior Debentures due 2024 (the "Senior Debentures") under the shelf registration dated May 6, 1993. The Company used substantially all of the net proceeds to repay amounts outstanding under the 1993 Credit Agreement incurred in connection with the acquisitions of Castle Rock and the remaining 50% interest in HB Holding Co. See Note 2 and Note 16 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders incorporated herein by reference. CAPITAL RESOURCES AND COMMITMENTS During 1994, the Company anticipates making cash expenditures of approximately $320 million for sports programming, primarily rights fees, approximately $640 million for original entertainment programming (excluding promotional and advertising costs) and approximately $85 million for licensed programming. Also, during 1994, the Company expects to make total expenditures of approximately $105 million for additional or replacement property and equipment. Of the anticipated programming and capital expenditures described above, firm commitments exist for approximately $520 million. Other capital resource commitments consist primarily of lease obligations, some of which are contingent on revenues derived from usage. Management expects to continue to lease satellite facilities, sports facilities and office facilities not already owned by the Company. Management expects to finance these commitments from working capital provided by operations and financing arrangements with lessors, vendors, film suppliers and additional borrowings. RESULTS OF OPERATIONS 1993 VS. 1992 ENTERTAINMENT SEGMENT Entertainment Segment revenue increased 8%, or $84 million. Advertising revenue contributed $56 million to the advance, which reflected an increase in the amount charged per thousand viewing homes on TBS SuperStation and TNT. Subscription revenue increased $49 million, through an increase in the monthly amount charged and a higher number of subscribers for TNT. These advances were offset somewhat by a $26 million decrease in 1993 in domestic and international home video revenue. This decrease was due to a refinement of previously recorded estimates resulting from the resolution of several uncertainties. Operating profit (defined as income before interest expense, interest income, income taxes, extraordinary items and the cumulative effect of changes in accounting for income taxes) for the Entertainment Segment decreased 6%, or $9 million, to $143 million, despite significant revenue advances in the core networks. Operating losses of $25 million in 1993 associated with new networks contributed to the operating profit decrease. New networks consist of the Cartoon Network, which was launched in 1992, and Cartoon Network Latin America and TNT & Cartoon Network Europe, which were launched in 1993. Also contributing to the operating profit decrease were a $21 million increase in original programming and related promotion and advertising costs, $15 million in costs related to the theatrical release of "Gettysburg," and increased selling, general and administrative costs. These higher costs were offset somewhat by a $34 million decrease in home video costs, reflecting the related cost effects of the refinement of previously recorded estimates and generally lower 1993 cost of sales. NEWS SEGMENT News Segment revenue increased 13%, or $68 million, to $599 million. Advertising revenue contributed $29 million to the increase, up 11% from 1992, primarily from an increase in the amount charged per thousand 23 25 viewing homes domestically. Subscription revenue contributed $31 million, up 16% from 1992, due to an increase in the monthly amount charged for CNN and a higher number of subscribers. CNN International contributed $93 million, or 16%, to total 1993 News Segment revenue due primarily to continued global expansion. Operating profit for the News Segment increased 19% to $212 million. This increase was due to the advances in revenue, offset by an increase in total costs of $34 million. The total cost increase arose from higher production costs, expenses associated with covering events in Somalia and Bosnia and higher international sales costs. OTHER Other Segment revenues remained constant at $182 million. Increased Braves home game and broadcasting revenue in 1993 offset the non-recurring effects of $12 million in Major League Baseball expansion fees received in 1992, as well as a decline in WCW revenue. Operating losses for this Segment declined to $33 million, a net decrease of $4 million, primarily due to a $16 million charge related to discontinuance of the Checkout Channel in 1992, offset somewhat by higher Braves team expenses and other increases in general and administrative costs. EQUITY (LOSS) IN UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION Equity in the losses of unconsolidated entities increased $16 million over 1992 results to $20 million. This increase arose primarily from the Company's investments in new international ventures. In March 1993, the Company acquired a 27.5% interest in n-tv, a 24-hour German news channel. The Company's share of 1993 losses was approximately $19 million. The Company is also committed to a 50% joint venture interest in an over-the-air television station in Moscow. See Note 2 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders incorporated herein by reference. Extraordinary items represent $11 million, net of tax benefits, associated with the early termination of certain of the Company's bank credit facilities and the redemption of the Convertible Notes due 2004. The 1992 extraordinary item of $44 million represents the utilization of operating loss carryforwards. See Note 5 and Note 7 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders incorporated herein by reference. The Company also reflected a $306 million non-recurring charge for the cumulative effect of adopting Statement of Financial Accounting Standards No. 109. This charge was primarily related to the TEC Library and, to a lesser degree, the Company's 50% interest in the HB Holding Co. As a result of the information discussed, the Company reported a net loss of $244 million in 1993 ($0.92 net loss per common share and common share equivalent). This compares to net income of $78 million in 1992 ($0.30 net income per common share and common share equivalent). RESULTS OF OPERATIONS 1992 VS. 1991 ENTERTAINMENT SEGMENT Entertainment Segment revenue increased 24%, or $210 million. Advertising revenue contributed $73 million to the increase, which reflected higher rates charged per thousand viewing homes, the amount of national inventory sold and the size of the viewing audience. Subscription revenue rose $35 million due to an increase in the size of TNT's subscriber base and a rate increase effective January 1, 1992. Businesses launched in late 1991, TNT Latin America, Hanna-Barbera, Inc. and Turner Publishing, contributed $10 million, $15 million and $12 million, respectively, to the increase in total revenue for 1992. In addition, home video revenues grew by $72 million, primarily related to the refinement of previously recorded estimates resulting from the resolution of several uncertainties and increases in international revenues. 24 26 Operating profit for the Entertainment Segment increased 4%, or $5 million, to $152 million, despite much greater revenue advances in the core networks. TNT Latin America, Hanna-Barbera, Inc. and Turner Publishing reflected an entire year of operating expense in 1992 operating profit, or an additional $37 million over 1991. Also contributing to the modest operating profit increase were $50 million in increased home video costs commensurate with revenue increases, additional rights fees and production costs of $23 million associated with TNT's telecast of the 1992 Winter Olympics and $21 million for the NFL games telecast and increased selling, general and administrative costs. NEWS SEGMENT News Segment revenue increased 11%, or $53 million, to $531 million. Advertising revenue rose $24 million and subscription revenues grew $26 million, reflecting an increase in the number of subscribers and a rate increase as well as overall growth experienced by CNN International. CNN International contributed $23 million to the News Segment's total increase in revenues. Operating profit for the News Segment increased 8%, to $178 million. Revenue increases were offset by CNN International expansion and the related increases in satellite and production costs. Higher domestic newsgathering costs associated with political and election coverage were mitigated somewhat by reduced international newsgathering costs due to the 1991 coverage of the Persian Gulf crisis. OTHER Other Segment revenues increased 26%, or $37 million. The continued strong performance of the Braves resulted in higher stadium attendance and concession revenues. In addition, expansion fees from Major League Baseball contributed $12 million to the increase in revenues for the year. Operating losses for these companies increased to $37 million, a net change of $22 million, due to increased Braves' player salaries, the development of the Airport Channel and $16 million of costs accrued in conjunction with the termination of the Checkout Channel. EQUITY (LOSS) IN UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION Equity in the losses of unconsolidated entities increased $4 million. This increase arose primarily from the Company's investment in HB Holding Co. Extraordinary items represent the utilization of $44 million of net operating loss carryforwards, compared to operating loss carryforwards reflected in 1991 of $43 million. As a result of the information discussed above, the Company reported net income of $78 million in 1992 ($0.30 net income per common share and common share equivalent). This compares to 1991 net income of $86 million ($0.24 net income per common share and common share equivalent). NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post-Employment Benefits." This standard requires companies to recognize the obligation to provide post-employment benefits (benefits provided to former or inactive employees after employment but before retirement) if the obligation is attributable to employees' services already rendered, employees' rights to these benefits vest or accumulate and the payment of the benefits is probable and can be estimated. The new standard, which the Company will adopt January 1, 1994, is not anticipated to have a material impact on its financial position. 25 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements and notes thereto for the Company and the report of the independent accountants, which are included on pages 29 through 51 of the 1993 Annual Report to Shareholders under the following captions listed below, are incorporated herein by reference. Consolidated Statements of Operations for the three years ended December 31, 1993. Consolidated Balance Sheets at December 31, 1993 and 1992. Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three years ended December 31, 1993. Consolidated Statements of Cash Flows for the three years ended December 31, 1993. Notes to Consolidated Financial Statements. Report of Independent Accountants. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to directors of the Company will be filed by amendment to this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K. Certain information concerning the executive officers of the Company is set forth in Part I of this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K under the caption entitled "Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of officers and directors of the Company will be filed by amendment to this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding ownership of certain of the Company's securities will be filed by amendment to this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions with the Company will be filed by amendment to this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K. 26 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The financial statements set forth on pages 29 through 51 of the 1993 Annual Report to Shareholders are incorporated herein by reference (see Exhibit 13). (a)(2) Financial Statement Schedules for the three years ended December 31, 1993
SCHEDULE PAGE NUMBER DESCRIPTION NUMBER - -------- -------------------------------------------------------------------------- ------ II Amounts receivable from related parties and underwriters, promoters and employees other than related parties...................................... 36 VIII Valuation and qualifying accounts and reserves............................ 37 X Supplementary income statement information................................ 38
The report of the Company's independent accountants with respect to the above-referenced financial statement schedules appears on page 35 of this report. All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (a)(3) Exhibits
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 2.1 Agreement and Plan of Merger, dated October 15, 1993, by and among the Company, NL Acquisition Co., and New Line Cinema Corporation (filed as Exhibit 2.1 to the Company's Form 8-K dated October 15, 1993, and incorporated herein by reference). 2.2 Form of Purchase Agreement, dated as of December 22, 1993, by and among the Company, CR Acquisition Co., Castle Rock Entertainment, Inc., Rain Productions, Padnick Productions, Inc., Rob Reiner Productions, Inc., Scheinman Productions, Inc., Shafer Productions, Inc., Castle Rock Holding, Inc. and Group W Investments, Inc., (filed as Exhibit 2.1 to the Company's Form 8-K dated December 22, 1993, and incorporated herein by reference). 2.3 Form of Stock Purchase Agreement, by and among the Company, Apollo Investment Fund, L.P. and HB Holding Co. (filed as Exhibit 2.3 to the Company's Registration Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993, and incorporated herein by reference). 3.1 Restated Articles of Incorporation of the Company, as amended (the "Articles") (filed as Exhibit 4.9 to Amendment No. 2 to the Company's Registration Statement on Form S-2 (Registration No. 33-686), filed with the Commission on March 18, 1986, and incorporated herein by reference). 3.1.2 Substitute Statement of Resolution Establishing and Designating the Series A Cumulative Preferred Stock (filed as Exhibit 4.11 to the Company's Form 10-K for the fiscal year ended December 31, 1985, and incorporated herein by reference). 3.1.3 Articles of Amendment, dated June 3, 1987, to Articles (filed as Exhibit 4 to the Company's Form 8-K dated June 3, 1987, and incorporated herein by reference). 3.1.4 Articles of Amendment, dated August 25, 1987, to Articles (filed as Exhibit 2(a) to Amendment No. 1 on Form 8 dated August 20, 1987 to the Company's Registration Statement on Form 8-A filed with the Commission on August 13, 1987, and incorporated herein by reference). 3.1.5 Articles of Amendment, dated July 15, 1988, to Articles (filed as Exhibit 3.1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated herein by reference).
27 29
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 3.1.6 Articles of Amendment, dated July 23, 1990, (filed as Exhibit 3 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1990, and incorporated herein by reference). 3.1.7 Articles of Amendment, dated June 5, 1992, to Articles, (filed as Exhibit 3.1.7 to the Company's Form 10-K for the fiscal year ended December 31, 1992 (the "1992 Form 10-K"), and incorporated herein by reference). 3.2 Bylaws of the Company, as amended on and through November 13, 1990 (filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year ended December 31, 1991 (the "1991 Form 10-K"), and incorporated herein by reference). 4.1 12% Senior Subordinated Debentures Indenture, dated as of October 15, 1989, between the Company and United States Trust Company of New York, as Trustee (filed as Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-3 (Registration No. 33-30747), and incorporated herein by reference). 4.2 Liquid Yield Option Notes Indenture, dated as of February 13, 1992, between the Company and Security Pacific National Bank, as Trustee (filed as Exhibit 4.4 to the 1991 Form 10-K, and incorporated herein by reference). 4.3.1 Form of Note relating to the Company's 8 3/8% Senior Notes due July 1, 2013 (filed as Exhibit 4(d) to the Company's Form 8-K dated June 16, 1993, and incorporated herein by reference). 4.3.2 Form of Officers' Certificate establishing the terms of the Company's 8 3/8% Senior Notes due July 1, 2013 (filed as Exhibit 4(e) to the Company's Form 8-K dated June 16, 1993, and incorporated herein by reference). 4.4.1 Form of Senior Indenture ("Senior Indenture"), dated as of May 15, 1993, between the Company and The First National Bank of Boston, relating to senior debt securities consisting of notes, debentures or other evidence of indebtedness in the aggregate amount of $1,100,000,000 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with the Commission on May 6, 1993, and incorporated herein by reference). 4.4.2 Form of Subordinated Indenture ("Subordinated Indenture"), relating to senior subordinated debt securities consisting of notes, debentures or other evidence of indebtedness in the aggregate amount of $1,100,000,000 (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with the Commission on May 6, 1993, and incorporated herein by reference). 4.4.3 Form of the Company's Standard Multiple-Series Indenture Provisions relating to the Senior Indenture and the Subordinated Indenture (filed as Exhibit 4(c) to the Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with the Commission on May 6, 1993, and incorporated herein by reference). 4.5 Form of Officers' Certificate establishing the terms of the Company's 7.40% Senior Notes due February 1, 2004 with form of Note attached (filed as Exhibit 4(f) to the Company's Form 8-K dated January 27, 1994, and incorporated herein by reference). 4.6 Form of Officers' Certificate establishing the terms of the Company's 8.40% Senior Debentures due February 1, 2024 with the form of Debenture attached (filed as Exhibit 4(g) to the Company's Form 8-K dated January 27, 1994, and incorporated herein by reference). 4.7.1 Credit Agreement, dated as of July 1, 1993 ("1993 Credit Agreement"), between the Company and The Chase Manhattan Bank (National Association), as agent (filed as Exhibit 4.9.1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993, and incorporated herein by reference). 4.7.2 Form of Amendment No. 1, dated as of December 1, 1993, to the 1993 Credit Agreement (filed as Exhibit 4.6.2 to the Company's Registration Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993, and incorporated herein by reference).
28 30
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 4.7.3 Form of Amendment No. 2, dated as of December 15, 1993, to the 1993 Credit Agreement (filed as Exhibit 4.6.3 to the Company's Registration Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993, and incorporated herein by reference). 4.7.4 Form of Consent and Agreement, dated as of December 21, 1993, relating to the 1993 Credit Agreement (filed as Exhibit 4.6.4 to the Company's Registration Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993, and incorporated herein by reference). 10.1 Agreement between City of Atlanta and Fulton County Recreation Authority and Milwaukee Braves, Inc., dated 1964, as amended by seven supplemental agreements and assigned to Atlanta National League Baseball Club, Inc. (filed as Exhibit 10(b)(i) to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended December 31, 1980, and incorporated herein by reference). 10.2 License Agreement between City of Atlanta and Fulton County Recreation Authority and Atlanta Hawks Basketball, Inc. dated January 26, 1971, as amended by several letter agreements and as assigned to Atlanta Hawks, Ltd. (filed as Exhibit 10(b)(ii) to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended December 31, 1980, and incorporated herein by reference). 10.3 Limited Partnership Agreement of Atlanta Hawks, Ltd., as amended (filed as Exhibit 10(b)(iv) to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended December 31, 1980, and incorporated herein by reference). 10.4 Turner Broadcasting System, Inc. 1988 Stock Option Plan (filed as Exhibit 10.1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated herein by reference).* 10.5 Agreement, dated as of November 30, 1989, between the Company and the National Basketball Association (filed as Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.6 Indemnification Agreement, dated as of March 11, 1986, by and between MGM/UA Entertainment Co. and United Artists Corporation ("UA"), as supplemented by Supplemental Indemnification Agreement, dated as of August 25, 1986, by and between Turner Entertainment Co. and UA (filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.7 Concession Agreement between Atlanta Braves, Inc. and Automatic Retailers of America, Inc., dated November 1, 1965; Agreement Amending Concession Agreement dated August 15, 1966; Supplement to Concession Agreement, as amended, dated January 10, 1969; two letter agreements with ARA Services, Inc., Atlanta/LaSalle Corporation and Atlanta National League Baseball Club, Inc. ("ANLBC") dated January 28, 1976; letter agreement between ARA Services, Inc. and ANLBC dated November 23, 1977; and Promissory Note from ANLBC to ARA Services, Inc. dated November 30, 1977 (filed as Exhibit 4(b)(vi) to Amendment No. 1 on Form 8 to the Company's 10-K for the fiscal year ended December 31, 1980, and incorporated herein by reference). 10.8 Agreement, dated April 8, 1985, between TBS and Pacific-10 Conference, and Television Right Agreement, dated April 10, 1985, between TBS and the Big Ten Conference (filed as Exhibit 10(n) to the Company's Form S-1, filed on April 18, 1985, Registration Number 2-97132, and incorporated herein by reference).
29 31
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 10.9 Amended and Restated Joint Venture Agreement for Omni Ventures between ICC Ventures, Inc. and Turner Omni Venture, Inc., dated May 28, 1985 (filed as Exhibit 10(n)(i) to the Company's Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration Number 2-97132, and incorporated herein by reference). 10.10 Lease Agreement between the Company and Omni Ventures (now CNN Center Ventures), dated May 28, 1985 (filed as Exhibit 10(n)(ii) to the Company's Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration Number 2-97132, and incorporated herein by reference). 10.11 Sublease Agreement between the Company and DeFoor Properties Incorporated, dated May 28, 1985 (the "Sublease Agreement"), (filed as Exhibit 10(n)(iii) to the Company's Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration Number 2-97132, and incorporated herein by reference). 10.12.1 First Amendment to the Sublease Agreement, dated as of November 15, 1985; Second Amendment to the Sublease Agreement, dated as of July 31, 1986; Third Amendment to the Sublease Agreement, dated as of December 31, 1986 (filed as Exhibit 10.16 to the Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.12.2 Assignment and Assumption of Sublease Agreement, dated as of June 19, 1990, between the Company and CNN Center Ventures (filed as Exhibit 10.16.2 to the Company's Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 10.12.3 First Amendment to Memorandum of Sublease, dated as of June 22, 1990, between Cousins Properties, Inc. and CNN Center Ventures (filed as Exhibit 10.16.3 to the Company's Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 10.13 Joint Venture Agreement, dated as of March 1986, between MGM/UA Entertainment Co. and United Artists Corporation (filed as Exhibit 10.25 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and incorporated herein by reference). 10.14 Distribution Agreement, dated as of March 11, 1986, between United Artists/Metro-Goldwyn-Mayer Distribution Co. and MGM/UA Entertainment Co. (filed as Exhibit 10.26 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986, Registration No. 33-686, and incorporated herein by reference). 10.15 Distribution Agreement, dated as of March 11, 1986, between United Artists/Metro-Goldwyn-Mayer Distribution Co. and United Artists Corporation (filed as Exhibit 10.27 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and incorporated herein by reference). 10.16 Name and Logo Agreement, dated as of March 11, 1986, between MGM/UA Entertainment Co. and United Artists Corporation (filed as Exhibit 10.28 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and incorporated herein by reference). 10.17 Distribution Agreement, dated as of March 11, 1986, between MGM/UA Entertainment Co. and United Artists Corporation (filed as Exhibit 10.29 to the Company's Amendment No. 2 to Form S-2, filed on March 18, 1986, Registration Number 33-686, and incorporated herein by reference). 10.18 Distribution Agreement (New Pictures), dated August 25, 1986, between Turner Entertainment Co. and United Artists Corporation (filed as Exhibit 10(b) to the Company's Form 8-K dated August 25, 1986, and incorporated herein by reference). 10.19 Amended and Restated Distribution Agreement (Home Video), dated July 16, 1993, between Turner Entertainment Co. and Metro-Goldwyn-Mayer Inc. (filed as Exhibit 10.5 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993, and incorporated herein by reference).
30 32
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 10.20 License Agreement (RKO library) by and between Entertainment Acquisition Company, Inc. and Turner Entertainment Co., dated December 16, 1987. (The Company hereby agrees to furnish a copy of the Agreement to the Commission upon request). 10.21 Amended and Restated Subscription and Registration Rights Agreement, dated as of May 27, 1987, by and among the Company and the persons listed on the signature pages thereof (filed as Exhibit 10.32 to the Company's Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.22 Shareholders' Agreement, dated as of June 3, 1987 (the "Shareholders' Agreement"), by and among the Company, R. E. Turner and the Original Investors (as defined)(filed as Exhibit 10.33 to the Company's Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.23 Investors' Agreement, dated as of June 3, 1987, by and among the Company and the Investors (as defined)(filed as Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.24 First Amendment, dated as of April 15, 1988, to the Shareholders' Agreement (filed as Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated herein by reference). 10.25 Memorandum of Understanding, dated as of February 17, 1989, between the Company, Home Box Office, Inc. and Hughes Communications Galaxy, Inc. (The Company hereby agrees to furnish a copy of this instrument to the Commission upon request). 10.26 Satellite Service Agreement, dated as of March 2, 1990, between the Company and GTE Spacenet Corporation. (The Company hereby agrees to furnish a copy of this instrument to the Commission upon request). 10.27 The Turner Incentive Plan (filed as Exhibit 19 to the Company's Form 10-Q for the fiscal quarter ended September 30, 1989, and incorporated herein by reference).* 10.28 Letter Agreement, dated as of January 3, 1994, between the Company and the National Football League. 10.29 Agreement, dated as of September 22, 1993, by and between the National Basketball Association, the Company and Turner Network Television. 10.30 Letter Agreement, dated as of November 3, 1989, between TBS SuperStation, Turner Network Television and Columbia Pictures Television, Inc. (filed as Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.31 Letter Agreement between Turner Broadcasting System, Inc. ("TBS"), MGM/UA Communications Co. ("MGM/UA CC"), Pathe Communications Corporation and MGM-Pathe Communications Co., dated September 25, 1990 (as amending and incorporating by reference the Letter Agreement, dated July 15, 1990, between TBS and MGM/UA CC), as amended by Letter Agreements, dated October 1, 1990, October 8, 1990, October 22, 1990, October 24, 1990, October 26, 1990 and October 30, 1990 (filed as Exhibit 10 in the Company's Form 10-Q for the fiscal quarter ended September 30, 1990, and incorporated herein by reference). 10.32 Assignment and Assumption Agreement, dated as of December 4, 1991, by and between HB Distribution Co., Turner Broadcasting System, Inc., Great American Television and Radio Company, Inc. and Great American Broadcasting Company (filed as Exhibit 9 in the Company's Form 8-K dated December 4, 1991, and incorporated herein by reference).
31 33
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 10.33 Participation Agreement, dated as of December 1, 1991, among Final Frontier Partners, GATX Capital Corporation, Pittway Corporation, Wilmington Trust Company, CIBC Leasing, Inc., Barclays Bank Inc., Ameritrust Company National Association and Turner Broadcasting System, Inc. (The Company hereby agrees to furnish a copy of this instrument to the Commission upon request). 10.34 Lease Agreement, dated as of December 1, 1991, between Wilmington Trust Company and Turner Broadcasting System, Inc. (filed as Exhibit 10.46 to the 1991 Form 10-K, and incorporated herein by reference). 10.35 Consent and Agreement, dated as of December l, 1991, Hughes Communication Galaxy, Inc., Hughes Communications Satellite Services, Inc., Final Frontier Partners, Wilmington Trust Company, Ameritrust Company National Association, CIBC Leasing Inc. and Barclays Bank, PLC (filed as Exhibit 10.47 to the 1991 Form 10-K, and incorporated herein by reference). 10.36 Turner Broadcasting System, Inc. Supplemental Benefit Plan (filed as Exhibit 10.48 to the 1992 Form 10-K, and incorporated herein by reference).* 10.37 Turner Broadcasting System, Inc. Supplemental Executive Retirement Plan (filed as Exhibit 10.49 to the 1992 Form 10-K, and incorporated herein by reference).* 10.38 Turner Broadcasting System, Inc. 1993 Stock Option Plan.* 10.39 Employment Agreement, dated as of December 20, 1993, by and between the Company and W. Thomas Johnson, as amended by agreement dated January 26, 1994.* 10.40 Employment Agreement, dated as of December 20, 1993 , by and between the Company and Terence F. McGuirk, as amended by agreement dated January 26, 1994.* 10.41 Employment Agreement, dated as of January 1, 1994, by and between the Company and Scott M. Sassa, as amended by agreement dated January 26, 1994.* 11 Computation of Earnings per Common and Common Equivalent Share. 13 Portions of the 1993 Annual Report to Shareholders expressly incorporated by reference in Part I, Item 1 and Part II, Items 5, 6 and 8 of this Report. 21 Subsidiaries of the Company. 23 Consent of Price Waterhouse.
- --------------- * Management contract or compensatory plan or arrangement. (B) REPORTS ON FORM 8-K On December 28, 1993, the Company filed a Form 8-K announcing that the Company had acquired Castle Rock Entertainment ("Castle Rock") from Main Street Partners, Sony Pictures Entertainment, Inc. and Group W Investments, Inc. for $100 million in cash together with the repayment of the indebtedness of Castle Rock, and submitted the following documents in connection with such acquisition: Purchase Agreement, dated as of December 22, 1993, by and among the Company, CR Acquisition Co., Castle Rock Entertainment, Inc., Rain Productions, Padnick Productions, Inc., Rob Reiner Productions, Scheinman Productions, Inc., Shafer Productions, Inc., Castle Rock Holding, Inc. and Group W Investment Inc.; Audited Castle Rock Entertainment Consolidated Balance Sheets as of December 31, 1991 and 1992 and the related Consolidated Statements of Operations, Partners' Equity and Cash Flows for the years then ended; Unaudited Castle Rock Entertainment Condensed Consolidated Balance Sheet as of September 30, 1993 and the Condensed Consolidated Statements of Operations and Cash Flows for the nine months ended September 30, 1992 and 1993; Unaudited Company Pro Forma Condensed Combined Balance Sheet as of September 30, 1993 and Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1992 and the nine months ended September 30, 1993. 32 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TURNER BROADCASTING SYSTEM, INC. (Registrant) By: /s/ R. E. TURNER --------------------- R. E. Turner Chairman of the Board of Directors and President (Chief Executive Officer) Dated: March 28, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------- --------------- /s/ R. E. TURNER Chairman of the Board of March 28, 1994 - ------------------------------------------ Directors and President (Chief R. E. Turner Executive Officer) /s/ WAYNE H. PACE Vice President -- Finance March 28, 1994 - ------------------------------------------ (Chief Financial Officer) Wayne H. Pace /s/ WILLIAM S. GHEGAN Vice President and Controller March 28, 1994 - ------------------------------------------ (Chief Accounting Officer) William S. Ghegan /s/ HENRY L. AARON Director March 28, 1994 - ------------------------------------------ Henry L. Aaron /s/ WILLIAM C. BARTHOLOMAY Director March 28, 1994 - ------------------------------------------ William C. Bartholomay /s/ W. THOMAS JOHNSON Director March 28, 1994 - ------------------------------------------ W. Thomas Johnson /s/ RUBYE M. LUCAS Director March 28, 1994 - ------------------------------------------ Rubye M. Lucas /s/ TERENCE F. McGUIRK Director March 28, 1994 - ------------------------------------------ Terence F. McGuirk /s/ BRIAN L. ROBERTS Director March 28, 1994 - ------------------------------------------ Brian L. Roberts /s/ SCOTT M. SASSA Director March 28, 1994 - ------------------------------------------ Scott M. Sassa /s/ JOSEPH J. COLLINS Director March 28, 1994 - ------------------------------------------ Joseph J. Collins
33 35
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------- --------------- /s/ MICHAEL J. FUCHS Director March 24, 1994 - ------------------------------------------ Michael J. Fuchs /s/ GERALD M. LEVIN Director March 25, 1994 - ------------------------------------------ Gerald M. Levin /s/ BOB MAGNESS Director March 28, 1994 - ------------------------------------------ Bob Magness /s/ JOHN C. MALONE Director March 28, 1994 - ------------------------------------------ John C. Malone /s/ TIMOTHY P. NEHER Director March 28, 1994 - ------------------------------------------ Timothy P. Neher Director - ------------------------------------------ Fred A. Vierra
34 36 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Turner Broadcasting System, Inc. Our audits of the consolidated financial statements referred to in our report dated February 15, 1994 appearing on page 51 of the 1993 Annual Report to Shareholders of Turner Broadcasting System, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE Atlanta, Georgia February 15, 1994 35 37 SCHEDULE II TURNER BROADCASTING SYSTEM, INC. AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (IN THOUSANDS)
BALANCE AT END OF PERIOD BALANCE AT ------------------ BEGINNING AMOUNTS NON OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT ---------- --------- --------- ------- ------- Year ended December 31, 1991: Henry Aaron.................................. $158 $ 0 $ (15) $14 $ 129 ---------- -- --------- ------- ------- TOTAL................................ $158 $ 0 $ (15) $14 $ 129 ---------- -- --------- ------- ------- ---------- -- --------- ------- ------- Year ended December 31, 1992: Henry Aaron.................................. $143 $ 0 $ (15) $14 $ 114 ---------- -- --------- ------- ------- TOTAL................................ $143 $ 0 $ (15) $14 $ 114 ---------- -- --------- ------- ------- ---------- -- --------- ------- ------- Year ended December 31, 1993: Henry Aaron.................................. $128 $ 0 $ (16) $14 $ 98 ---------- -- --------- ------- ------- TOTAL................................ $128 $ 0 $ (16) $14 $ 98 ---------- -- --------- ------- ------- ---------- -- --------- ------- -------
Non-interest bearing advance secured by salary and earned deferred compensation payable in 240 monthly installments beginning January 1, 1983. 36 38 SCHEDULE VIII TURNER BROADCASTING SYSTEM, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
RECOVERIES CHARGED ON TO ACCOUNTS BALANCE AT COSTS PREVIOUSLY BALANCE ALLOWANCE FOR DOUBTFUL BEGINNING AND WRITTEN AT END ACCOUNTS RECEIVABLE OF PERIOD EXPENSES OFF WRITE-OFFS OTHER OF PERIOD - -------------------------------------- ---------- -------- ---------- ---------- ------- --------- Year ended December 31, 1991................... $ 31,525 $ 7,203 $ 0 $ (7,993) $ 1,060 $ 31,795 ---------- -------- ---------- ---------- ------- --------- ---------- -------- ---------- ---------- ------- --------- Year ended December 31, 1992................... $ 31,795 $ 13,917 $ 22 $ (14,928) $(1,712) $ 29,094 ---------- -------- ---------- ---------- ------- --------- ---------- -------- ---------- ---------- ------- --------- Year ended December 31, 1993................... $ 29,094 $ 16,978 $4,052 $ (16,601) $ 1,475 $ 34,998 ---------- -------- ---------- ---------- ------- --------- ---------- -------- ---------- ---------- ------- ---------
CHARGED TO BALANCE AT COSTS BALANCE VALUATION ALLOWANCE ON BEGINNING AND AT END DEFERRED TAX ASSETS OF PERIOD EXPENSES WRITE-OFFS OTHER OF PERIOD - -------------------------------------- ---------- -------- ---------- ------- --------- Year ended December 31, 1993................... $ 0 $ 8,723 $ 0 $ 0 $ 8,723 ---------- -------- ---------- ------- --------- ---------- -------- ---------- ------- ---------
37 39 SCHEDULE X TURNER BROADCASTING SYSTEM, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------- 1993 1992 1991 ------- ------- ------- Advertising costs(1)........................................... $84,929 $86,903 $74,411 ------- ------- ------- ------- ------- -------
- --------------- (1) Costs relate primarily to advertising the Company's products and services in a variety of media. 38 40 EXHIBIT INDEX
EXHIBITS PAGE - ------ ------------- 10.28 Letter Agreement, dated as of January 3, 1994, between the Company and the National Football League. 10.29 Agreement, dated as of September 22, 1993, by and between the National Basketball Association, the Company, and Turner Network Television. 10.38 Turner Broadcasting System, Inc. 1993 Stock Option Plan. 10.39 Employment Agreement, dated as of December 20, 1993, by and between the Company and W. Thomas Johnson, as amended by agreement dated January 26, 1994. 10.40 Employment Agreement, dated as of December 20, 1993, by and between the Company and Terence F. McGuirk, as amended by agreement dated January 26, 1994. 10.41 Employment Agreement, dated as of January 1, 1994, by and between the Company and Scott M. Sassa, as amended by agreement dated January 26, 1994. 11 Computation of Earnings per Common and Common Equivalent Share. 13 Portions of the 1993 Annual Report to Shareholders expressly incorporated by reference in Part I, Item 1 and Part II, Items 5, 6 and 8 of this Report. 21 Subsidiaries of the Company. 23 Consent of Price Waterhouse.
EX-10.28 2 NATIONAL FOOTBALL LEAGUE 1 [Logo] EXHIBIT 10.28 NATIONAL FOOTBALL LEAGUE Paul Tagliabue Commissioner January 3, 1994 Mr. Terence F. McGuirk Executive Vice President Turner Broadcasting One CNN Center Atlanta, GA 30303 Dear Terry: This letter will confirm the agreement reached on December 14, 1993 between the National Football League and Turner Broadcasting for the renewal of our TNT cable television and broadcast television agreement for the four seasons 1994 through 1997. While we are prepared to forward a detailed renewal document to you shortly, it would seem that a signed agreement on the financial terms is desirable at this point. It is our understanding that rights payments will be as follows: 1994 - $115 million 1995 - $120 million 1996 - $128 million 1997 - $133 million Please confirm your agreement by executing this letter in the space provided below. Sincerely, /s/ Paul Tagliabue ----------------- PAUL TAGLIABUE BY: Terence F. McGuirk --------------------- (TURNER BROADCASTING) DATE: January 5, 1994 --------------------- 410 Park Avenue, New York, New York 10022 (212) 758-1500 FAX (212) 758-1742 EX-10.29 3 NBA/TBS AGREEMENT 1 EXHIBIT 10.29 NBA/TBS AGREEMENT ----------------- AGREEMENT, made this 22nd day of September, 1993, by and between the NATIONAL BASKETBALL ASSOCIATION, as agent for its member teams ("NBA"), 645 Fifth Avenue, New York, New York 10022, and TURNER BROADCASTING SYSTEM, INC. ("TBS"), SUPERSTATION, INC. ("Superstation Inc.") and TURNER NETWORK TELEVISION, INC. ("Turner Inc."), each of which is located at One CNN Center, Atlanta, Georgia 30303. TBS owns all of the issued and outstanding capital stock of Superstation Inc. and Turner Inc. and owns or controls certain other programming networks carried by cable television systems and other non-broadcast television systems. Superstation Inc. is the holder of the Federal Communications Commission license for WTBS, Channel 17, Atlanta, Georgia, a commercial over-the-air television station whose signal is distributed by common carrier or resale common carrier via satellite (or by other similar means of distribution) to cable television systems or to other nonbroadcast television distribution systems (e.g., DBS, MDS, SMATV) ("WTBS"). Turner Inc. owns the cable programming network known as Turner Network Television ("TNT"), which is typically carried by cable television systems on their basic or expanded basic tier of service. Superstation Inc. and Turner Inc. (together, the "Telecasters" and each a "Telecaster") wish to acquire the exclusive national cable network television rights to games between the member teams of the NBA for telecast on WTBS and TNT, respectively. To induce the NBA to grant those rights to Superstation Inc. and Turner Inc., TBS wishes to cause those entities and certain of its other affiliated programming networks to perform other obligations relating to those rights. 1 2 Accordingly, the parties have agreed as follows: I. RIGHTS ------ A.1. Subject to Paragraphs I.B. and C. below, NBA hereby grants to the Telecasters, for telecasting on WTBS and TNT, exclusive national cable network television rights, during the Term (as defined in Paragraph II. below), to NBA exhibition, regular season and playoff games, in accordance with the terms and conditions more specifically set forth herein, within the United States and those territories, commonwealths and possessions of the United States located within the "satellite footprint" regularly used by the Telecasters to cover the contiguous United States (the "Broadcast Area"). For purposes of this Agreement, the term "cable network" shall include (i) any national basic, expanded basic or premium cable television service (e.g., USA Network, ESPN and HBO), (ii) any commercial over-the-air television station licensed to broadcast an NBA game in a team's local broadcast area (which is defined as the area of the team's home state and the area consisting of one hundred fifty (150) miles from the corporate or unincorporated limits of the city of operation (or other governmental entity) of the team whose signal is distributed by common carrier or resale common carrier via satellite (or by other similar means of distribution) to more than five (5) million television households outside of such team's Territory (which is defined as the area within seventy-five (75) air miles of the corporate or unincorporated limits of the city of operation (or other governmental entity) of the team, as reported by A C. Nielsen Co., and (iii) without limitation, those television services and over-the-air stations listed on Exhibit A hereto. 2. The NBA games that the Telecasters shall be licensed to telecast are referred to herein as "Games" and shall be either cablecast on TNT or broadcast over-the-air on WTBS in accordance with the terms of this Agreement. Subject to Paragraph IV.D. below, each 2 3 Game telecast on either TNT or WTBS during the Term shall be telecast live and in its entirety and shall include a pre-Game segment, a half-time segment, and a post-Game segment, as more specifically described below. The Games telecast by the TNT and by WTBS shall be distributed as part of the complete and entire programming schedule of each such respective cable network for reception by any type of viewer or subscriber who regularly subscribes to such cable network(s) through a cable system or other non-broadcast television distribution system without any additional payment or other action by a subscriber being required. B. Except as specifically provided in this Agreement, as between the NBA, on the one hand, and the Telecasters and TBS, on the other hand, the NBA retains, without limitation, all rights to broadcast, telecast, transmit or otherwise distribute or commercially exploit all NBA games, including Games, and non-game NBA programming, by any and all forms of television, radio, reproduction and other technologies and all other forms of commercial distribution and exploitation, whether presently existing or not and whether now known or hereafter developed; provided, however, that except as specifically provided in this Paragraph I., the NBA shall not license, and none of the member teams of the NBA shall be permitted to license, the telecast of any NBA game to any national over-the-air network or cable network during the Term. C. Notwithstanding anything to the contrary in this Agreement, in each Season during the Term the NBA retains the right to license up to an aggregate of fifteen (15) regular season games, other than the Games, for telecast on one (1) or more commercial over-the-air television stations(s) licensed to broadcast NBA games in a team's local broadcast area whose signal is distributed by common carrier or resale common carrier via satellite (or by other similar means of distribution) to more than five (5) million television households outside of such team's Territory, as reported by A. C. Nielsen Co. (any such over-the-air station being a "broadcast cable 3 4 network"); provided, however, that (i) the NBA shall not license the telecast of any Game to a broadcast cable network other than WTBS, and (ii) the NBA shall not license, and none of the member teams of the NBA shall be permitted to license, an NBA game for telecast by a broadcast cable network during the same night as the telecast of a Game. D. TBS and the Telecasters acknowledge that the NBA is party to an agreement dated April 27,1993 with NBC Sports, a division of the National Broadcasting Company ("NBC Sports", in which the NBA granted NBC Sports rights to telecast NBA games other than the Games. In the event that NBC Sports advises the NBA that it intends to broadcast an NBA playoff game at the same time that a Telecaster is scheduled to telecast a playoff Game, (i) NBA shall notify the applicable Telecaster as to such decision as soon as reasonably practicable, but in no event less than five (5) business days in advance of such playoff Game, and (ii) the applicable Telecaster shall not telecast such playoff Game during NBC Sports' playoff game broadcast; provided, however, that the NBA represents that NBC Sports shall not broadcast more than twenty-nine (29) playoff games, excluding the NBA Finals, during any Season, unless an additional round is added to the NBA playoffs or an existing playoff round is lengthened. II. TERM ---- The term of this Agreement ("Term") shall be four (4) basketball seasons, beginning with the commencement of the 1994-95 NBA season and ending at the conclusion of the 1997-98 NBA season. Each such NBA season shall commence with the first game of the exhibition season played between NBA member teams after the commencement of player training camps (approximately 28 days prior to the start of the NBA regular season) and conclude with the last Game of the NBA Finals (a "Season"). 4 5 III. FEES; ADVERTISING ----------------- A. For all rights granted to the Telecasters hereunder, the Telecasters shall pay to the NBA, in its capacity as agent for its member teams, to be disbursed in such a manner as such member teams shall determine among themselves, the sum of $352,000,000 (the "Base Amount"), together with any additional amount that may be due under Paragraph III.C. below. B.1. The Base Amount shall be paid to the NBA, as agent for its member teams, in four (4) annual fees (each sometimes referred to as an "Annual Fee") in accordance with the following: (i) for the 1994-95 season: $82,000,000 (ii) for the 1995-96 season: $86,000,000 (iii) for the 1996-97 season: $90,000,000 (iv) for the 1997-98 season: $94,000,000
2. Each Annual Fee shall be payable in six (6) equal consecutive monthly installments on the first day of each month, commencing November 1 and ending April 1 of each Season. The Telecasters shall pay each installment by a single wire transfer of immediately available funds to an account designated by the NBA. C. As additional consideration for the rights granted to the Telecasters under this Agreement, the Telecasters shall pay to the NBA, as agent for its member teams, an amount (the "Shared Advertising Revenues"), if any, equal to one-half (1/2) of "Net Advertising Revenues" (as defined in subparagraph III.D.1 below) in excess of the sum of $340,000,000. The amount of Shared Advertising Revenues payable to the NBA, if any, shall be determined and paid as follows: 5 6 1. In the event that the amount of Net Advertising Revenues (as defined below) as of July 15, 1996 ("Year 2 Net Advertising Revenues") exceed $159,000,000, then the Telecasters shall pay to NBA as Shared Advertising Revenues an amount equal to one-half (1/2) of the amount by which Year 2 Net Advertising Revenues exceed $159,000,000, not later than September 1, 1996 by a single wire transfer of immediately available funds to an account designated by the NBA. Subject to Paragraph III.C.2. below, in the event that Year 2 Net Advertising Revenues equal or are less than $159,000,000, the Telecasters shall not pay to the NBA any Shared Advertising Revenues on or before September 1, 1996. 2. In the event that Net Advertising Revenues as of July 15, 1998 are less than $340,000,000, and the Telecasters have paid NBA any Shared Advertising Revenues pursuant to subparagraph 1. above, then NBA shall pay the Telecasters an amount equal to all Shared Advertising Revenues so paid by Telecasters not later than September 1,1998, by a single wire transfer of immediately available funds to an account designated by the Telecasters, the amount to be disbursed between the Telecasters in such manner as they shall determine among themselves. In the event that Net Advertising Revenues as of July 15, 1998 exceed $340,000,000 but the amount of such excess is less than two (2) times the sum of all Shared Advertising Revenues the Telecasters paid to NBA pursuant to subparagraph 1. above, then NBA shall pay the Telecasters, not later than September 1, 1998, by a single wire transfer of immediately available funds to an account designated by the Telecasters, an amount (to be disbursed between the Telecasters in such manner as they shall determine among themselves) that results in the Telecasters receiving one-half (1/2) of Net Advertising Revenues in excess of the sum of $340,000,000. In the event that Net Advertising Revenues as of July 15, 1998 exceed $340,000,000 by an amount in excess 6 7 of two (2) times the sum of all Shared Advertising Revenues the Telecasters paid to NBA pursuant to subparagraph 1. above, then the Telecasters shall pay NBA, not later than September 1,1998 by wire transfer to an account designated by the NBA, an amount that results in NBA receiving one-half (1/2) of Net Advertising Revenues in excess of the sum of $340,000,000. D.1. "Net Advertising Revenues," as used herein, shall mean: (a) all gross revenues paid or payable to TBS, either of the Telecasters or any of their respective sales affiliates (without deduction or offset for any advertising agency commissions that may be payable by any of them) with respect to either (i) the sale to advertisers and sponsors of any commercial advertising time, insertions of such time and any enhancements, entitlements and/or billboards in any Game, or (ii) promotional consideration given or received by any of them during the Games (including all replays of Games) telecast by TNT or WTBS, in either case for the period beginning with the "pre-break" immediately following the program preceding each Game (including any pre-Game segment) (the "Pre-pre-break") (or beginning immediately following the Pre-pre-break if, during the Season in which the Pre-pre-break is telecast, the commercial advertising time or promotional consideration given or received with respect to the Pre-pre-break is not sold, given or received as part of Game or NBA-related programming) and ending with the commencement of the program following each Game (including any end-of-program sponsored "tag" (e.g., airlines), including, without limitation, all pre-Game, half-time, post-Game and "bridge" segments (the items described in clauses (i) and (ii) being collectively referred to as "sales inventory"); 7 8 (b) plus, with respect to sales inventory not yet telecast but for which sales orders have been received, all gross revenues that will be paid or payable to TBS, either of the Telecasters or any of their respective sales affiliates upon telecast of that sales inventory (without deduction or offset for any advertising agency commissions that may be payable by any of them) (the sum of subparagraphs III.D.1.(a) and (b) being "Gross Revenues"); (c) less the actual advertising agency commissions paid by TBS, either of the Telecasters or any of their respective sales affiliates with respect to Gross Revenues (which commissions shall not exceed then-standard industry commissions or 15%, whichever is less). 2. Within ten (10) days of the execution of this Agreement, and at monthly intervals thereafter during the Term hereof, the NBA shall cause representatives of NBA Properties, Inc. (or one of its subsidiaries) (hereinafter "NBAP") to meet and confer with representatives of TBS and the Telecasters to plan and coordinate their sales activities with respect to NBA telecasts so as to develop a joint sales strategy for each Season that reduces conflicts among sponsors, maximizes the revenues and other mutual benefits to be derived by the parties from sponsor relationships, and augments each other's sales activities with respect to sponsors or potential sponsors for telecasts of the Games. During such meetings, NBAP, TBS and the Telecasters shall use their best efforts to: (a) advise each other of potential sponsors for the Games, including sponsors for the pre-Game, post-Game and half-time segments; and 8 9 (b) jointly consider issues relating to the sale of advertising time or sponsorship packages with respect to the Games, including but not limited to, (i) the provision of ratings guarantees, (ii) the provision of enhancements, billboards, entitlements, and make-goods, (iii) the use of "bonus" commercials, (iv) the granting of sponsor category exclusivities, (v) the use of advertising inventory with respect to overtime periods in any Game(s), (vi) the creation of rate cards for use in the sale of advertising time in the Games, (vii) procedures to be used for the sale of remaining unsold inventory in a Game as the date of such Game approaches, and (viii) the manner in which TBS, the Telecasters or any of their respective affiliates packages NBA advertising inventory with advertising inventory from programming not relating to the NBA. 3. TBS and the Telecasters shall furnish NBA during the Term hereof with complete and accurate copies of the following documents as soon as commercially feasible, but in no event later than three (3) business days after any such document has been created or received by TBS, the Telecaster or any of their respective sales affiliates: (a) any "advance inventory status report," "sales to date status report," "pre-log" and "post-log" for each Game, sponsorship or advertising agreement, and/or sales order relating to the sale or placement of advertising time in any Game; (b) any agreement that provides for sponsorship in any Game and sponsorship in any other programming not relating to the NBA, including, but not limited to, programming on all cable networks and private networks affiliated with TBS (e.g., TNT, WTBS, Cable News Network, Cartoon Network, Airport Channel) (a "package agreement"); provided, however, that the copy of any such package agreement provided to the NBA may be redacted to eliminate any contractual terms and conditions that are 9 10 not necessary for the NBA to determine the allocation of revenues or other consideration under such package agreement allocable to the Games and to any other programming not relating to the NBA that is packaged with advertising time in any Games; and (c) any memoranda, status report, correspondence or other document created or received by TBS, the Telecasters or any of their respective sales affiliates relating to the sale or placement of advertising time in any Game, including any document necessary for the NBA to determine the average unit prices and actual selling prices of advertising time and the identity of advertisers within any program on TBS, either of the Telecasters or any of their respective sales affiliates that is packaged with advertising time in any Game. 4. (a) TBS and each of the Telecasters shall in good faith act and use its best efforts so as to maximize Net Advertising Revenues during, and with respect to, the Seasons. Neither TBS nor either of the Telecasters shall take any action, the intent or the effect of which would be to diminish Net Advertising Revenues or to benefit, at the expense of Net Advertising Revenues, their other programs or operations or a third party. TBS and each of the Telecasters shall endeavor, on a good faith basis, to conduct its operations relating to the Games, including the sale of advertising time therein, in a manner that would mutually benefit TBS and the Telecasters, on the one hand, and NBA, on the other hand. TBS and each of the Telecasters also shall sell all advertising time within the Games, including advertising time in any pre-Game segment, half-time segment, and post-Game segment, on an arm's-length basis. In selling advertising time, TBS and the Telecasters shall use a sales staff, in number and experience, at least equal to the staff used by TBS and the Telecasters with respect to the sale of advertising time 10 11 in other major sports (e.g., National Football League games, Atlanta Braves games and Goodwill Games). (b) No advertising time in the Games shall be given to sponsors free of charge, bartered or traded for or used for a commercial or public service announcement for any sports league, team or athletic organization; provided, however, that (i) "make-good" spots may be granted in accordance with Paragraph III.D.6 below, and (ii) "tune-in" promotional announcements for non-NBA sports leagues, teams or athletic organizations may be included in a Game telecast so long as any telecast that is the subject of the "tune-in" promotional announcement is not scheduled to air during the time period that a Game telecast is scheduled to air. Any "tune-in" promotional announcement in the Games for any non-NBA program may not use or be accompanied by the name or logo of a corporate sponsor, except that if the name of a corporate sponsor is part of the official name of the non-NBA program (e.g., "Blockbuster Bowl"), such corporate sponsor's name, but not logo, may be used in such "tune-in" promotional announcement. 5. (a) Subject to the provisions of this Paragraph III.D, advertising time during the telecasts of the Games, including advertising time in any pre-Game segment, half-time segment, and post-Game segment, shall be sold by TBS and the Telecasters. (b) TBS and the Telecasters shall not undertake, implement or agree to grant any sponsor any advertising category exclusivity with respect to the Games without obtaining the prior written consent of the NBA (such consent not to be unreasonably withheld). 11 12 (c) TBS and the Telecasters shall not include any sponsored segments, enhancements or entitlements, altered screens (e.g., "shrunken screens", awards, vignettes, promotions or sponsor tie-ins with NBA trademarks and service marks during the telecast of any Game or in the promotion either of any Game or of the telecast of Games on TNT or WTBS, without the prior written approval of the NBA (which approval shall not be unreasonably withheld), except that NBA shall have the right, in its sole discretion, to withhold its consent on seasonal or annual League-wide awards during the telecast of any Game. (d) TBS and the Telecasters shall not enter into any package agreement that results in an allocation of revenues under such package agreement in which: (i) any sponsor's commercial unit(s) within a Game is valued at an amount less than the average commercial unit price for such category for such Game; (ii) any sponsor's commercial unit(s) within a Game is valued at an amount less than the average commercial unit price for such Game; and/or (iii) any sponsor's commercial unit(s) within any other program is valued at an amount greater than the average commercial unit price for such program. 6. (a) In the event of either (i) the non-delivery of any commercial spot in a Game for any reason ("non-delivery"), or (ii) the underdelivery to any sponsor of gross ratings points in the Games, based on ratings guarantees provided in writing to such sponsor ("underdelivery" by TBS or the Telecasters, then TBS or the applicable Telecaster(s) shall notify NBA as soon as is reasonably possible and such non-delivery or underdelivery shall be "made good" as follows: (1) In the event that the applicable Telecaster(s) and NBA jointly agree: 12 13 (i) any such non-delivery shall be made good by the applicable Telecaster(s) in the same Game, if possible, or in the same type of Game (i.e., regular season Game or playoff Game) in the same Season in which the non-delivery occurred; and/or (ii) any such underdelivery shall be made good by the applicable Telecaster(s) in the same type of Game (i.e., regular season Game or playoff Game) in the same Season in which the underdelivery occurred. (2) If such joint agreement is not reached, or if no unsold commercial inventory is available in which to place a make good commercial spot in the same Game or in the same type of Game (i.e., a regular season or playoff Game) in the same Season, the applicable Telecaster(s) and NBA shall jointly determine, subject to the affected sponsor's approval, where required, whether such non-delivery or underdelivery shall be made good by the applicable Telecaster(s) in a regular season Game in the immediately next Season, a playoff Game, or in other TBS programming with viewing audience demographics similar to the Games. The applicable Telecaster(s) shall not preempt paid commercial time in any Game, preempt any announcements promoting its telecast of the Games, or, except as provided in Paragraph III.D.6(b) below, forego selling commercial time to place such make good spots in any Game, unless NBA specifically approves such preemption or forbearance in advance. (b) In the event that there is unsold commercial time in a Game telecast from the commencement of any Season through January 15 of such Season, and TBS is obligated to run or make good sponsor commercial spot(s) from the telecast of a National Football League ("NFL") game played during the then current NFL season, TBS, the 13 14 applicable Telecaster(s) and NBA shall jointly determine, subject to the affected sponsor's approval, where required, whether to place a make good spot for such sponsor in the unsold commercial time within such Game. The applicable Telecaster(s) shall in no event (i) place more than six (6) make-good spots within any such Game, or (ii) preempt paid commercial time in any such Game, or preempt any announcements promoting its telecast of the Games, to place such sponsor's make good spots in any Game. In the event that TBS, the applicable Telecaster(s) and NBA determine, in accordance with this subparagraph, to run or make good within a Game a sponsor's commercial spot from an NFL game telecast, then there shall be added to Net Advertising Revenues, for each such spot run or made good in such Game, an amount equal to one-half (I/2) of the average commercial unit price for such Game (unless NBA specifically approves a lower commercial unit price). Notwithstanding anything to the contrary in this subparagraph, if the NBA does not agree to allow the applicable Telecaster(s) to run or make good within a Game a sponsor's commercial spot from an NFL game telecast in accordance with this subparagraph, the NBA, subject to the reasonable approval of the applicable Telecaster(s) (which may be withheld only for reasons consistent with such Telecaster(s)' obligations under this Agreement), shall purchase the unsold commercial time in the Game in which any such make good spot was to run at a price equal to the average of the three (3) lowest priced commercial units which have been sold in the Game, and the amount paid by the NBA shall be added to Net Advertising Revenues. IV. SCHEDULE AND FORMAT ------------------- During each Season, TBS and the Telecasters: (i) shall cause TNT or WTBS (as the case may be) to telecast those Games that it is to telecast under this Paragraph 14 15 IV, and shall not authorize any other party to televise any such game by any means of broadcast or non-broadcast television; and (ii) shall not televise, or authorize any other party to televise, and shall cause their respective subsidiaries and affiliates not to televise or authorize any other party to televise, any NBA game, other than the Games, by any means of broadcast or non-broadcast television. Notwithstanding the preceding sentence, TBS shall be permitted, subject to NBA rules and regulations, to (i) license any over-the-air station in Atlanta, Georgia (other than WTBS) to broadcast in the Atlanta Hawks' local broadcast area, NBA games played by the Atlanta Hawks and (ii) authorize SportsSouth (or another other local cablecaster) to cablecast in the Atlanta Hawks' Territory NBA games played by the Atlanta Hawks. A. During each Season, TBS and the Telecasters shall cause the telecast of Games on TNT or WTBS (as the case may be) in accordance with the following: 1. The annual Hall of Fame pre-Season exhibition game shall be telecast on TNT, unless such game is not played or is not made available by the NBA for telecast, in which case TNT shall telecast at least one (1) other pre-Season exhibition game to be determined by NBA (e.g. exhibition game in London). The NBA shall use commercially reasonable efforts to provide attractive team "match-ups" with respect to the exhibition games to be telecast by TNT in accordance with the preceding sentence. Upon the mutual agreement of the applicable Telecaster(s), and NBA, TNT and/or WTBS shall be permitted to telecast additional pre-Season exhibition games. All advertising revenues attributable to the telecast of any pre-Season exhibition Game shall be included in Net Advertising Revenues. 15 16 2. (a) Forty-five (45) regular season Games (including, for each Season, at least one (1) Season opening game played outside the United States, provided that such a game is played and made available for telecast by the NBA) shall be telecast on TNT on Tuesday and Friday nights and, on occasion, with the NBA's prior reasonable approval, other nights of the week; provided, however, that in no event shall TNT be permitted to telecast a regular season Game on any Sunday when NBC Sports telecasts either an NBA doubleheader or an NBA game in prime time. Regular season Games may be telecast on TNT as part of doubleheaders. (b) Twenty-five (25) regular season Games shall be telecast on WTBS on each Thursday night of the regular season, unless the NBA decides, in its own discretion, not to telecast a Game on Thanksgiving Day, Christmas Eve, Christmas Day, New Year's Eve or New Year's Day (collectively, "Holidays"). In the event the NBA decides not to telecast a game in accordance with the preceding sentence, or NBC Sports wishes to televise a Game on any such Holiday, NBA and Superstation Inc. shall jointly schedule the telecast of a Game on WTBS on an alternate date. Regular season Games may be telecast on WTBS as part of doubleheaders. 3. (a) Unless impracticable due to WTBS programming commitments entered into prior to the January 1 of a Season, any Playoff game during that Season that is not scheduled for telecast on NBC Sports shall be telecast on TNT or WTBS, and the NBA and the Telecasters jointly shall determine, in accordance with this Paragraph IV.A.3, which Telecaster will telecast the game. The Telecasters shall use their best efforts to avoid entering into programming commitments that may make it impracticable for TNT or WTBS to telecast a Playoff Game. 16 17 (b) During each night of the first two rounds of the Playoffs (i.e., through and including the Conference Semifinals), TNT shall make available sufficient time in its programming schedule, beginning at 7:00, 7:30 or 8:00 P.M. Current New York Time ("CNYT"), as the NBA may determine, in which to telecast a Playoff doubleheader. (c) Subject to Paragraph IV.A.3(a) and Paragraph I.D. above, TNT shall schedule for telecast: (i) as many Playoff Games of the first two rounds of the Playoffs as are available during the time periods described in Paragraph IV.A.3(b) above in accordance with the Playoff schedule attached hereto as Exhibit B; and (ii) all Playoff Games of the Conference Finals in accordance with the Playoff schedule attached hereto as Exhibit B. (d) Subject to Paragraphs IV.A.3(a)-(c) above, WTBS shall telecast any scheduled Playoff Game that is not telecast on TNT because another Playoff Game is scheduled to air on TNT during any portion of such Playoff Game. Playoff Games to be telecast by WTBS shall be telecast in accordance with the Playoff schedule attached hereto as Exhibit B. B.1. Unless mutually agreed to by the applicable Telecaster(s) and NBA: (i) each Game telecast (other than the second game of a doubleheader) shall be scheduled to start at 8:00 P.M. CNYT; and (ii) each Game telecast that is a second game of a doubleheader shall be scheduled to start at 10:30 P.M. CNYT. Notwithstanding the preceding sentence, in the event NBC Sports televises a Playoff triple-header on the same 17 18 day as a Game telecast, such Game shall not be scheduled to start prior to 9:00 p.m. CNYT, unless mutually agreed to by the NBA and the applicable Telecaster(s). 2. The NBA will use its best efforts to cause the home team for each Game to adjust the starting time of such Game to accommodate the reasonable scheduling requirements of TNT and WTBS and to comply with the NBA's uniform game format. In connection with the preceding sentence, it is understood that such scheduling requirements call for tip-off times ten (10) minutes or forty (40) minutes after the hour. 3. Not more than one (1) time each Season, if requested by the Telecasters, each NBA team in the Pacific and Mountain time zones shall be required to schedule a Game on either TNT or WTBS (but not both) to start at 8:00 P.M. CNYT. C.1. Subject to scheduling considerations beyond the control of the NBA, on or before August 1 prior to each Season, the NBA will provide the Telecasters with a final and complete schedule of the regular season games to be played during the upcoming Season. The Telecasters shall then, during the two-week period following receipt of such schedule from the NBA, select the regular season Games to be telecast on TNT and WTBS, subject to Paragraph IV.A.2. above, Paragraph IV.C.2. below and the approval of the NBA. Notwithstanding the scheduling procedure set forth in this subparagraph, but subject to Paragraph IV.A.2 above, Paragraph IV.C.2 below and the prior approval of the NBA (which approval shall not be unreasonably withheld), the Telecasters may, in the course of an NBA Season, substitute Games. 2. Each NBA team must be scheduled each Season to appear in at least one (1) regular season Game telecast by either TNT or WTBS. No team may participate in 18 19 more than thirteen (13) regular season Games telecast by TNT and/or WTBS during any Season. The number of "home" and "away" Games scheduled for each NBA team during any Season shall be at the discretion of the NBA, although no more than one-half (1/2) (not to exceed six (6)) of the Games involving a team may be "home" games for such team. Notwithstanding the foregoing, if the ratings of the regular season Games telecast on WTBS and TNT during a Season (as reported by the A. C. Nielsen Co. with respect to cable television households in the United States that receive WTBS or TNT, as the case may be) average less than 1.7, the maximum number of regular season Games that a team may participate in during the immediately following Season shall be fourteen (14). D.1. Each regular season or Playoff Game telecast by TNT or by TBS that is scheduled to start at 8:00 P.M. CNYT may be re-telecast one (1) time in its entirety by the same Telecaster that telecast such Game live (i.e., on TNT or WTBS), provided that such re-telecast begins at the later of (i) the completion of the live telecast of an NBA doubleheader (and any NBA-related programming telecast following such doubleheader) telecast by either of the Telecasters the same night such Game is played, or (ii) 1:00 A.M. CNYT (a "Replay"). AlI advertising revenues attributable to any Replay shall be included in Net Advertising Revenues. 2. Subject to Paragraph IV.D.1 above, the Telecasters shall telecast the Games hereunder on a live basis, and in their entirety; provided, however, that if a Playoff doubleheader is telecast on WTBS and the starting times of the two Games selected do not permit telecast of both on a live basis, then, upon the mutual agreement of Superstation Inc. and NBA, the later-starting Game may be taped for telecast as the second Game of 19 20 the doubleheader immediately following the live telecast of the first (earlier-starting) Game. E.1. Turner Inc. shall use commercially reasonable efforts to produce and telecast on TNT, at its expense, on days that TNT telecasts one (1) or more Playoff Games and WTBS does not telecast any overlapping Playoff Games, a pre-Game show ("Pre-Game Show") of thirty (30) minutes in length, featuring NBA statistics, highlights and personalities, immediately preceding the first Game telecast on such day, including no more than five (5) national commercial or promotional minutes and no more than one (1) local cable operator commercial or promotional minute. All advertising revenues attributable to any such Pre-Game Show, less the reasonable, actual, direct, out-of-pocket production costs incurred by Turner Inc. solely for such Pre-Game Show, shall be included in Net Advertising Revenues. 2. Provided that Game starting times are in accordance with Paragraph IV.B.1. above, each of the Telecasters shall produce and telecast, at its expense, a pre-Game segment of approximately ten (10) minutes in length featuring NBA standings, statistics, highlights and personalities. Such pre-Game segment shall be telecast immediately prior to each Game telecast on TNT and WTBS as part of the Game telecast, except that no pre-Game segment shall be telecast prior to the second Game of a doubleheader which has begun before the completion of the first Game of the doubleheader. All advertising revenues attributable to any such pre-Game segment shall be included in Net Advertising Revenues. F. Subject to the program schedule of TNT and WTBS (as the case may be), each Telecaster shall produce and telecast, at its expense, a post-Game or "bridge" segment following 20 21 each Game ("post-Game segment") telecast on TNT and/or WTBS, featuring an interview of a player who participated in the Game just telecast (provided such player is available on reasonable terms), and a report of scores and highlights of other NBA games played that day. Each such post-Game or bridge segment shall contain no more than one-half (1/2) of a national commercial or promotional minute within each two and one-half (2-1/2) minutes of program time. All advertising revenues attributable to any such post-Game or "bridge" segment shall be included in Net Advertising Revenues. G. The commercial format of the segment telecast during the half-time intermission of each Game ("half-time segment") shall be determined jointly by the applicable Telecaster and the NBA. Substantially all of the programming content during any "half-time-segment" shall be devoted to NBA-related topics. H. NBA shall use commercially reasonable efforts to provide the Telecasters with access to officials, players, coaches and other appropriate personnel for the purpose of providing the Telecasters with material for use in connection with the Telecasters' promotional efforts relating to the Games, and with conducting interviews during pre-Game, half-time and post-Game segments. I. The Telecasters shall use a commercial format for the telecast of each Game (inclusive of pre-Game, half-time, and post-Game segments) in accordance with Paragraphs IV. E2., F. and G. above and Paragraphs IV.J. and K below and the following: 1. The commercial format for each regular season Game on TNT shall contain twenty-five (25) national commercial or promotional minutes (or twenty-three (23) such minutes, in the event that the Pre-pre-break sales inventory is not included in Net 21 22 Advertising Revenues for such Season), five (5) local cable operator commercial or promotional minutes and five (5) 5-second "inverted" promotional announcements in accordance with the commercial formats attached as Exhibit C hereto. 2. The commercial format for each regular season game on WTBS shall contain thirty (30) national commercial or promotional minutes and five (5) 5-Second "inverted" promotional announcements in accordance with the commercial format attached as Exhibit D hereto. 3. The commercial format for each Playoff Game on TNT shall contain twenty-eight (28) national commercial or promotional minutes (or twenty-six (26) such minutes, in the event that the Pre-pre-break sales inventory is not included in Net Advertising Revenues for such Season), five (5) local cable operator commercial or promotional minutes and five (5) 5-second "inverted" promotional announcements in accordance with the commercial formats attached as Exhibit E hereto. Notwithstanding the preceding sentence, if during the Term the NBA agrees to increase the number of national commercial or promotional units contained in the commercial format used for the Playoff Games telecast by NBC Sports, the number of national commercial or promotional units contained in the commercial format for the Playoff Games on TNT shall be increased by the same amount. 4. The commercial format for each Playoff Game on WTBS shall contain thirty-three (33) national commercial or promotional minutes and five (5) 5-second "inverted" promotional announcements in accordance with the commercial formats attached as Exhibit F hereto. 22 23 5. In the event of any overtime periods during a Game on TNT or WTBS, each such period shall include no more than six (6) one-minute commercial breaks, in which all units shall be national commercial or promotional units, including one (1) 30-second unit that shall be made available to the NBA, at no charge, during each overtime period in the second one-minute break for a promotional spot, a public service announcement and/or commercials for the direct sale of NBA-licensed merchandise in accordance with the last two sentences of Paragraph IV.J.1. below. Notwithstanding the preceding sentence, in the event of a second overtime period during a Game on TNT, TNT may include one (1) minute of local cable operator commercial or promotional advertising which shall be included in the commercial or promotional time set forth in the preceding sentence. J. Notwithstanding anything to the contrary in this Agreement: 1. The Telecasters shall integrate in each Game telecast (including half-time segment) two (2) minutes of NBA public service announcements, promotional spots and/or commercials for NBA programming or the direct sale of NBA-licensed merchandise (including, for example, advertisements for NBA "Inside Stuff," NBA home videos, the NBA Encyclopedia, the All-Star Game Program, and NBA merchandise) to be produced at the expense of, and provided by, the NBA or one of its affiliates. All such announcements, spots, and/or commercials shall be in addition to the minutes of national and local cable operator commercial or promotional advertising referred to in Paragraph IV.I. above. Any NBA public service announcement included in a Game telecast may use or be accompanied by the name or logo of a corporate sponsor of the NBA, provided that any such sponsor does not conflict with an exclusive sponsor of the telecast of the Game. The Telecasters shall not share in any revenues attributable to, and there shall be 23 24 no fees charged to the NBA in connection with, the commercial or promotional spots referred to in this Paragraph. 2. At least one (1) of the five (5) 5-second "inverted" promotional announcements included in the commercial format of each Game in accordance with Paragraph IV.I. above shall belong to the NBA to use in its sole and absolute discretion. 3. The Telecasters shall integrate in all Game telecasts, consistent with TBS program quality standards, audio and video promotional references to the forthcoming schedule of Games on TNT and WTBS and to the NBA standings. K. During the Term, notwithstanding anything to the contrary contained in this Agreement, the NBA shall authorize TBS to distribute on the Airport Channel within the Broadcast Area the Games telecast on TNT and WTBS. In the event that a regular season or Playoff Game on TNT is distributed on the Airport Channel, the NBA shall be permitted to cause NBAP to sell, for telecast on the Airport Channel, commercial announcements for NBA sponsors during six (6) of the 30-second units of commercial or promotional advertising time that would otherwise have been allocated to local cable operators under Paragraph IV.I.1. and 3. above, provided that any such commercial announcements do not conflict with an advertiser that has purchased an exclusive advertising category in the Games. Upon the reasonable request of NBAP, TBS shall cause the insertion of the commercial units described in the preceding sentence into the telecast of the Game on the Airport ChanneL V. MARKETING AND DISTRIBUTION -------------------------- A. TBS and the Telecasters will market and telecast the Games hereunder as part of the prime-time sports programming on TNT and WTBS. 24 25 B. The NBA shall make the timely notification required under Chapter 1 of Title 47 Section 76.67 of the Code of Federal Regulations ("Section 76.67") so that all of the cable systems (and other forms of television distribution) referred to thereunder and subject to Section 76.67 shall be required to delete carriage of all Games on WTBS covered by said Section. TBS and Superstation Inc. shall provide all information within their custody reasonably required by the NBA to comply with Section 76.67. In the event that Section 76.67 is amended or legislation is enacted in such a manner as to eliminate or reduce the carriage deletion presently required thereunder, the Telecasters shall discuss with the NBA in good faith whether such elimination or reduction has adversely affected, or will adversely affect, the NBA's interest under this Agreement and, if so, appropriate measures of compensating the NBA for the elimination or reduction in required carriage deletion. C. The Telecasters shall cause the "blackout" of all Games (other than Replays) telecast on TNT (or on WTBS, in the event that WTBS is a cable network that is not a commercial over-the-air television station) within the area of thirty-five (35) miles from the home team's city of operation. In the event that this "blackout" provision is violated by any cable system(s) (or other form of television system), the Telecasters shall pay NBA the sum of $10,000 for each violation by each such system (such amount payable within thirty (30) days of the violation). In the event of a second violation by any such system, the Telecasters shall prohibit such system from telecasting any additional Games on TNT (or on WTBS, in the event that WTBS is a cable network that is not a commercial over-the-air television station) during the Term of this Agreement. The Telecasters shall take all necessary, lawful steps to ensure absolute compliance with the preceding sentence. It is the intention of the parties that the "blackout" hereunder will cover the same geographic areas required by Section 76.67 with respect to the blackout of Games telecast on WTBS. 25 26 D.1. In the event that, at any time during the Term, the number of cable television households in the United States that subscribe to TNT (as reported by the A.C. Nielsen Co.) is less than 85% of the total number of cable television households in the United States (as reported by A.C. Nielsen Co.), then the parties hereto shall negotiate in good faith an equitable adjustment, if appropriate, in the revenue-sharing provisions set forth in Paragraph III.C to account for the fact that the number of cable television households that subscribe to TNT is less than 85% of the total number of cable television households in the United States. 2. In the event that, during the Term, WTBS becomes a basic, expanded basic, tier or premium cable network that is not a broadcast cable network, the parties shall in good faith confer with respect to an appropriate adjustment to the commercial format set forth in Paragraphs IV.I.2., 4. and 5. above; provided, however, that TBS shall use its best efforts to ensure that the commercial format for a Game on WTBS does not contain more local cable operator commercial or promotional minutes than the format for a Game on TNT. 3. In the event that, at any time during the Term, the number of cable television households in the United States to which WTBS is available (as reported by the A.C. Nielsen Co.) is less than 85% of the total number of cable television households in the United States (as reported by A.C. Nielsen Co.), then the parties hereto shall negotiate in good faith an equitable adjustment, if appropriate, in the revenue-sharing provisions set forth in Paragraph III.C to account for the fact that the number of cable television households to which WTBS is available is less than 85% of the total number of cable television households in the United States. 26 27 VI. PRODUCTION AND TRANSMISSION --------------------------- A. The Telecasters shall be responsible during the Term for all production of the Games (including pre-Game, half-time and post-Game segments), origination, production and transmission of each Game, and shall use state of the art technology and equipment to telecast a major broadcast network quality audiovisual color signal for each Game. The Telecasters shall use their respective best efforts to employ a graphics style that is consistent with respect to Games telecast on both TNT and WTBS. 1. The Telecasters shall produce the pre-Game, half-time and post-Game segments of the Games using technology, equipment and resources at least equal in quality (e.g., state-of-the-art opening production pieces), type (e.g., use of studio set and NBA coaches, General Managers and players as guest studio analysts) and quantity (e.g., number of production crew members and number of cameras, tape machines and graphic equipment) to the level of technology, equipment and resources Turner Inc. used to produce such segments on TNT during the 1992-93 NBA Season. 2. Without limiting the effect of Paragraph VI A.1. above, with respect to each Game telecast, the Telecasters shall utilize no fewer than six (6) manned cameras (including three (3) floor "mini cameras" and one (1) roaming camera to be used predominantly in front of the announcer table), one (1) "shot clock" and one (1) "game clock" camera, four (4) slow motion, instant replay tape machines, one (1) state-of-the-art Chyron character generator machine or equivalent graphics display system, one (1) telestrator, full effects audio, and one (1) dual channel DVE. 27 28 3. The Telecasters shall use commercially reasonable efforts to provide "closed-captioning" for each Game telecast on TNT. B.1. Pursuant to the reasonable requirements and specifications of the Telecasters, the NBA represents that each NBA team from whose home arena a Game originates, after consultation with the Telecasters, shall furnish or shall cause the arena to furnish to the Telecasters, at the Telecasters' cost, all necessary facilities (except for such electric power and lighting as may be necessary for the Telecasters' telecast and an acceptable mobile unit parking area, which shall be furnished at no cost to the Telecasters) and security during the Games, including "set up time" and "tear down time" for the installation and operation of any microphones, ground level and other cameras, and related equipment. In addition, upon the reasonable prior request of the Telecasters, each NBA team from whose home arena a Game originates shall furnish or shall cause the arena to furnish to the Telecasters, at no cost to the Telecasters, one (1) "low end-zone" fixed camera location, and/or one (1) "reverse angle" camera location between the baselines on the side of the arena where the player benches are located. 2. In the event a Game is telecast by (i) either TNT or WTBS, (ii) a local telecaster licensed by the "home" team (the "Home Team Telecaster"), and/or (iii) a local telecaster licensed by the "visiting" team (the "Visiting Team Telecaster"), then upon the request of the Home Team Telecaster and/or the Visiting Team Telecaster, the applicable Telecaster shall provide, at no cost to either the Home Team Telecaster or the Visiting Team Telecaster, a feed of its primary game ("play-by-play") coverage camera and direct such camera to operate as if "on-line" throughout the Game telecast. 28 29 3. NBA shall provide the Telecasters with center court "floor" announcer locations at each Game. 4. Employees and agents of the Telecasters actually required to telecast the Games shall be admitted to each arena for each Game at the earliest practical time, free of charge, to exercise the rights granted herein and the NBA shall provide the Telecasters with necessary credentials for such purpose. 5. The rights granted to the Telecasters hereunder include the right to telecast all events and activities relating to a Game and taking place in and about the site of such Game which are open to the public, and, upon the prior approval of the NBA, such other events and activities which are not open to the public but which, in the opinion of the applicable Telecaster, are relevant to or shall enhance the telecast of the Game (e.g., post-Game press conferences). --- C. Each Season, the Telecasters shall assign, from among their employees, a Game producer, an NBA coordinating producer, and a director and associate director, and shall assign from among their employees and/or will engage, a play-by-play announcer, a color commentator and a studio host for each Game telecast. The Telecasters shall consult with the NBA in advance of making its Game producer, NBA coordinating producer and director selections. The Telecasters' selection of the announcers, color commentators, studio hosts and all other on-air talent to be used during the Games shall be subject to the approval of NBA. D. Subject to the provisions of Paragraph VI.B. above, the Telecasters shall be responsible for all costs and expenses of production, transmission and telecasting of the Games (including, without limitation, all pre-Game, half-time and post-Game segments). 29 30 E. If all NBA teams are required to "scramble" the backhaul signals of their game telecasts, then, upon request of NBA, the Telecasters, at their sole expense, shall scramble, in a manner mutually agreed upon by the Telecasters and the NBA, the backhaul signals of all Games transmitted by the Telecasters via satellite and shall provide access to such scrambled signals to the NBA, any NBA team requesting access and any NBA designees. The NBA represents that the Telecasters shall be reimbursed for any out-of-pocket expenses they incur in providing the access referred to in the preceding sentence. VII. PROMOTION --------- A. TBS and the Telecasters shall promote the telecast of the Games on WTBS and TNT, at their sole expense, as follows: 1. During any Season, TBS, the Telecasters and their affiliated networks shall provide NBA with promotional announcements and other promotions at least equal in number and in type to the promotional announcements and other promotions that TBS, the Telecasters and their affiliated networks provides for any other major professional sport (e.g., National Football League) or team (e.g., Atlanta Braves). 2. During any Season in which TBS, the Telecasters or their affiliated networks telecast any sports event (e.g., a Game, an NFL game, an auto race or the Winter Olympics), they shall use their best efforts to include a reasonable number of promotional announcements relating to the NBA in each telecast of such sports event. 3. During any Season covered by this Agreement, TBS, the Telecasters and their affiliated networks shall provide NBA with audio/video promotional announcements ("promos") at least equal to the promos they provided to NBA during the 1992-93 Season 30 31 with respect to (i) the total number of promos placed in all TBS affiliated cable networks and private networks (e.g., TNT, WTBS, CNN, Headline News, Cartoon Network and Airport Channel), (ii) the gross ratings points of the promos, (iii) the type and day part of programming in which the promos are placed, (iv) the content of the promos and (v) the demographic group reached by such promos. Without limiting the effect of the preceding sentence, TBS and NBA shall in good faith confer with each other prior to October 15, 1993 to determine the levels of promotion set forth in the preceding sentence that TBS affiliated networks provided to NBA during the 1992-93 Season. 4. (a) During each Season, TBS, the Telecasters and their affiliated networks shall use their best efforts to place a minimum of one (1) promo in the programming of each TBS affiliated cable network during the one-half (1/2) hour preceding the first Game telecast (or Pre-Game Show, whichever is earlier) by each Telecaster on any day of such Season. (b) During each Season, TBS, the Telecasters and their affiliated networks shall place a reasonable number of promos and/or NBA public service announcements in the programming of each TBS affiliated cable network. 5. In the event that during the Term a new TBS affiliated cable network and/or private network is introduced, TBS shall cause a reasonable number of promos to be placed in the programming of each such TBS affiliated cable network and/or private network. B. TBS shall use its best efforts to cause the Games to be promoted during sports scoreboard segments and sports news programs telecast on CNN and Headline News by identifying, with announcer voice-over and graphics in a reasonable manner, (i) the Games that, 31 32 have been, are currently being, or will be telecast by the Telecasters, (ii) the Telecaster carrying such Games, and, (iii) with respect to Games that have not yet been played, the starting telecast time of the Games. C. TBS and the Telecasters will promote the Games in and to the media (including, but not limited to, print and radio) in a reasonable manner and in accordance with their normal practice with respect to other major sports events telecast by TBS affiliated networks. D. Prior to each Season, TBS and the Telecasters agree to consult with the NBA as to the nature, type and content of all Game "tune-in" advertisements, promotions, opening and closing animation, and Chyron graphics and other visual effects to be telecast by any of them or by other TBS affiliated networks during such Season. E. Prior to the start of each Season during the Term, TBS and the Telecasters shall use commercially reasonable efforts to distribute, or to cause cable systems to distribute, copies of the NBA schedule to subscribers of TBS affiliated cable networks and private networks. VIII. RIGHT TO INSPECT BOOKS AND RECORDS ---------------------------------- NBA shall have the right, not more than five (5) times during the Term hereof (and not more than two (2) times during any calendar year covered by the Term hereof, by itself or by retaining an independent audit firm, upon reasonable notice and during normal business hours, to inspect and audit ("review") the books, records, correspondence, internal memoranda and other documents of TBS and the Telecasters relating to (i) the sale of, billing for, and/or collection regarding the advertising time or package agreements (as defined in Paragraph III.D.3(b) above) with respect to the Games or any Game, (ii) the calculation of Gross Revenues and Net Advertising Revenues (as defined in Paragraph III.D. above), including, but not limited to, sales, 32 33 billings, receipts, commissions, and reports from ratings services (e.g., A. C. Nielsen Co. and Arbitron) and (iii) the production costs attributable to the Pre-Game Shows. NBA shall be solely responsible for the cost of any review conducted during the Term. NBA shall also have the right to conduct one (1) additional review during the twenty-four (24) months following the expiration of the Term. The entire cost of any such review shall be borne by NBA. All information obtained during the course of a review which is not publicly available shall be kept confidential and shall not be disclosed to non-NBA personnel other than to the NBA's auditors, accountants and attorneys. IX. TRADEMARK, NAME AND LIKENESS ---------------------------- A. Subject to the approval of TBS or the Telecasters (as the case may be), which approval shall not be unreasonably withheld, NBA shall have the night to use the trademarks, logos and service marks of each of the Telecasters in promotional or other advertising material to promote or advertise NBA programming telecast on WTBS and TNT. B. Subject to subparagraphs IX.B.1.-3. below, the Telecasters shall have the right to use (to the extent that the NBA has the right to permit the Telecasters to use) the names, likenesses and biographical material of the NBA, the participants in the Games, including the teams and coaches thereof, the name or title of the Games and the name and logo of the NBA and each of its member teams, but only (i) as news or information, or (ii) in connection with the telecast of the Games and the production, exploitation, advertising and promotion of the Games. No such uses shall be made without the prior reasonable consent of NBA or NBAP, which shall not be unreasonably withheld. Notwithstanding anything to the contray in this Agreement: 33 34 1. Nothing shall be construed to require the NBA, NBAP or any of the member teams of the NBA to breach any written agreement between any member team and any participant in any game (including any Game), or any written collective bargaining agreement to which the NBA is a party. 2. TBS and the Telecasters shall not have the right to license or permit any local cable operator to use the name and/or logo of the NBA and/or its member teams in connection with any sponsor or advertiser (e.g., entitlements, tie-ins and billboards), unless such use has the prior written authorization of the NBA or NBAP, in its, or their, sole and absolute discretion, and TBS and the Telecasters shall use commercially reasonable efforts to prevent any such unauthorized use and to ensure that any local cable operator that uses NBA footage or logos in any way (i) obtains the prior approval of NBA or NBAP before such use and (ii) only uses NBA footage or logos provided to such cable operator by the NBA, NBAP or the Telecasters. 3. Unless TBS and the Telecasters have been expressly granted such right in writing by the NBA (the grant to be exercised by the NBA in its sole and absolute discretion), none of them shall have the right to make available, sell, assign or otherwise transfer to any person or entity any rights to (i) any copyrighted telecasts (as defined in Paragraph XIII.A. below), including any derivatives thereof, or (ii) any NBA or team name and/or logo, or any other trademark, tradename or other identifying mark of the NBA or its member teams. X. SIGNAGE ------- A. The NBA and each of its member teams shall have the right to place banners, placards, billboards, rotating signs or other means of advertising "Signage") containing 34 35 commercial messages, trade names, trademarks, or identifying service marks for any product, service or institution which are visible in the area of the basketball court at the site of a Game telecast during the Term, provided that any such Signage that is placed by the NBA (as opposed to any individual member team) is sold on a NBA-wide basis for Games, and provided, further, that any such Signage that is placed by the NBA (as opposed to any individual member team) does not conflict with an advertiser designated by TBS or the Telecasters as an "exclusive" advertiser of Game telecasts by notice given to the NBA not later than August 1 of each year. B. Notwithstanding Paragraph X.A. above: 1. Commencing with the first Playoff Game in the 1994-95 Season and continuing through the Term hereof: (a) NBA shall be responsible for ensuring that all non-NBA-wide Signage is either obscured or relocated so that it is not visible in the area of the basketball court during the telecast of such Game; provided, however, that the NBA shall not be responsible for controlling, obscuring or replacing "permanent" banners, placards, billboards or other means of advertising at the site of the Games. The NBA will advise the applicable Telecaster reasonably in advance of each Game of what products, services and/or institutions will be advertised on a permanent banner, placard, billboard or other means of advertising. (b) Subject to the approval of the arena in which a Game is played, the applicable Telecaster shall be reasonably permitted to display banners in and around the Game arena advertising TBS, the NBA on TBS (or whichever of TNT or WTBS is owned by that 35 36 Telecaster) and/or Turner Sports; provided, however, that the applicable Telecaster shall be permitted only to display banners advertising the NBA on TBS (or on TNT or on WTBS, as the case may be) in the area around the court and team benches. 2. With respect to any Playoff Game during the Term and any regular season or pre-season Game following the conclusion of the 1994-95 Season, NBA shall permit (and cause its teams to permit) TBS to position a manned hand-held camera in front of the scorer's table during the fourth quarter, and any overtime period, of such Game. XI. ASSIGNMENT AND TERMINATION -------------------------- Neither party to this Agreement may assign any of its rights or delegate any of its duties, in whole or in part, by contract or by operation of law without the prior written consent of the other party, and any purported assignment or delegation without such consent shall be null and void. Notwithstanding the preceding sentence: A. The NBA may assign any of its rights or delegate any of its duties to NBAP or any of its subsidiaries or any other affiliate of the NBA, and the NBA may assign its right to receive fees hereunder, in whole or in part, to any person, firm or corporation so long as, notwithstanding any such assignment of fees, NBA is not relieved of any obligation hereunder. Upon request of the NBA, TBS will agree to pay any fees that have been assigned in accordance with the preceding sentence directly to the assignee. B. TBS and the Telecasters may assign their rights or delegate their duties to any entity controlling, controlled by or under common control with TBS, provided that the Games are telecast on TNT or WTBS in accordance with the terms of this Agreement and TBS and the Telecasters are not relieved of any obligations hereunder. 36 37 XII. SEPARATE ENTITIES ----------------- Nothing in this Agreement shall create or be deemed to create a joint venture, partnership, principal-agent, employer-employee or similar relationship between TBS and/or either of the Telecasters, on the one hand, and NBA, on the other hand. The parties hereto agree that each of TBS and the Telecasters shall act solely as independent contractors hereunder. No officer, employee, agent, servant or independent contractor of any party or its respective subsidiaries or affiliates shall at any time be deemed to be an employee, servant or agent of any other party for any purpose whatsoever, and the parties shall use their best efforts to prevent any such misrepresentation. XIII. REQUIRED ANNOUNCEMENTS AND COPYRIGHT ------------------------------------ A. It is understood and agreed by the parties that, for all purposes, the NBA is, and shall be, the owner of the copyright to all NBA game telecasts, including all telecasts of Games (including all pre-Game, half-time and post-Game segments), Pre-Game Shows and any other program telecasts licensed to the Telecasters by NBA (or its related entities) and to all derivatives of those game telecasts or other telecasts (together, "copyrighted telecasts"). TBS and the Telecasters hereby transfer to the NBA any and all of their respective copyright and other property right interests in all aspects of the copyrighted telecasts. B. Except as expressly prohibited hereunder, the NBA has the unrestricted and unencumbered right to use and reuse, or to assign, license, sell or otherwise exploit, in whatever medium and for whatever purposes it chooses, the copyright and other property right interests in the copyrighted telecasts. Any and all proceeds derived therefrom shall be retained solely by the NBA. TBS and the Telecasters shall have no rights with respect to the copyrighted telecasts 37 38 except as specifically provided in this Agreement, and no use made by TBS or either of the Telecasters of any copyrighted telecasts shall constitute a "fair use, "except as expressly provided herein or by law. C. The Telecasters shall affix a copyright notice in the name of the NBA (Copyright 19______National Basketball Association), in accordance with the requirements established by applicable laws and regulations, at least once during, and at the close, of each Game telecast hereunder in such form as NBA may require. In addition, the Telecasters shall telecast an animated graphic containing the following announcement, or a substantially similar announcement, at least once during each Game telecast: This program is authorized under rights granted by the National Basketball Association solely for the entertainment of our audience and any publication, reproduction or other use of the pictures, descriptions or accounts of this Game without the express written consent of the National Basketball Association is prohibited. D. The Telecasters shall make such recording of the Games as may be necessary to preserve the NBA's copyright therein, and, at NBA's request, execute any affidavit necessary to confirm such recording. 38 39 XIV. RECORDING --------- A. The Telecasters shall record each Game. As used herein, the term "record" shall mean and include any recording or recordings by tape, film, disc, digital device or any other similar or dissimilar method of recording aural and/or visual portions of television programs, whether known or hereafter developed. The Telecasters shall retain each recording for no less than one (1) year after the conclusion of the Game telecast, and longer if requested by the NBA. All recordings shall be the sole and exclusive property of the NBA. The Telecasters may use such recordings: 1. for use in their Game telecasts and in the promotion of their telecast of any Games; 2. for use in perpetuity for file, reference, audition, sales and publicity purposes; 3. to telecast excerpts of such recordings during the Term as part of a CNN, TNT or WTBS news or sports news program at such times and at such places and in such manner as the applicable Telecaster, or CNN, may reasonably elect, provided that those excerpts are telecast as part of a CNN news or sports new program within the Broadcast Area only; and 4. for use in delayed telecasts as authorized in this Agreement. B. Upon request by the NBA, and at no cost to NBA, the Telecasters will supply the NBA with a one inch (1") or one-half inch (1/2") Beta SP or D-2 videotape (or any other industry standard videotape format available to TBS), including international and announcer 39 40 audio tracks, of each Game within twenty-four (24) hours of the conclusion of such Game. In addition, upon request, the Telecasters will make available to NBA, at no charge, its "ISO" reels, for duplication by NBA. NBA may utilize any such videotape for any purposes it shall determine, provided such use is not inconsistent with any express term of this Agreement. C. 1. If the NBA requests, at no charge to NBA (except as provided below), each Telecaster shall act as "host broadcaster" and provide at the site of each Game it telecasts a continuous generic broadcast quality feed, with international sound and graphics, for the distribution, by the NBA and/or its designees, of any Game by any alternate technology or non-English language network in the Broadcast Area (to the extent such distribution does not compete with the telecast rights granted by the NBA hereunder) and/or by any form of international distribution. 2. If requested by the NBA, each Telecaster also shall provide to the NBA and/or its designees, at no charge, a "dirty" final feed (with graphics, announcers, international sound and features included on its satellite feed) of each Game it telecasts for distribution by any alternate technology in the Broadcast Area (to the extent such distribution does not compete with the telecast rights granted by the NBA hereunder) and/or by any form of international distribution. As requested, the applicable Telecaster shall provide to the NBA's international broadcasters such commentary and production equipment and transmission facilities, at "rate card" (but only to the extent that the Telecaster incurs out-of-pocket expenditures), as they may reasonably require. 3. Notwithstanding anything to the contrary in this Agreement, each Telecaster shall provide a continuous broadcast quality feed (with graphics, announcers, and features), from the scheduled start to the completion of each Game it telecasts, in 40 41 connection with its obligations under this Paragraph XIV.C., including with respect to any Game telecast that, for any reason, must be joined in progress or is subject to a cut-in (as described in Paragraph XXII. below). 4. The Telecasters shall not be required under this Paragraph XIV.C. to supply equipment and personnel not reasonably available to them. If a Telecaster is required to provide additional personnel to satisfy its "host broadcaster" obligations, the NBA represents that the Telecaster shall be reimbursed for the out-of-pocket costs it incurs with respect to such personnel. XV. FORCE MAJEURE ------------- A. If the playing, or if the recording or live pick-up, of any Game on a telecast date is hindered or prevented, in whole or in substantial part, or if the live telecast of any Game is preempted, in whole or in substantial part, because of an act of God, inevitable accident, fire, labor dispute, riot or civil commotion, act of public enemy, governmental act, regulation or rule, failure of technical facilities or because of a day of national mourning, an emergency announcement or news bulletin, or because of any other reason beyond the control of NBA or the Telecaster of that Game or Games that is generally regarded as force majeure (other than a "Work Stoppage," as defined below) then all other obligations of the parties shall continue and when such force majeure has ceased, the Telecaster of that Game or Games may telecast, at no additional cost, a substitute Game or Games, as the case may be, on dates to be agreed upon by the parties. In the event that the parties are unable to agree on a date or dates for a substitute Game or Games, then, unless the force majeure is the result of a labor dispute at or affecting TBS or either of the Telecasters or enabled the applicable Telecaster to substitute for any Game(s) commercially sponsored programming of equal or greater value, the parties shall in good faith 41 42 negotiate an equitable reduction in the fees due hereunder, an adjustment to the revenue sharing provisions set forth in Paragraph III.C., the placement of the commercial inventory from the Game or Games preempted in other TBS affiliated programming, or a substitute Game in future Seasons during the Term. B. 1. In the event of a strike by the National Basketball Players Association or a lock-out of NBA players by the NBA (in either case, a "Work Stoppage") that causes the preemption of the playing, in whole or in part, of any NBA game, an other obligations of the parties shall continue (subject to Paragraph XV.B.2), including all obligations under Paragraph III above, and when such Work Stoppage has ceased, if such Work Stoppage caused the preemption, in whole or in part, of the live telecast of any Game, the parties shall in good faith confer with each other to negotiate with respect to an equitable reduction in the fees due hereunder, an adjustment to the revenue sharing provisions set forth in Paragraph III.C. above, or a comparable substitute Game for the Game not telecast. 2. Notwithstanding Paragraph XV.B.1 above, in the event that a Work Stoppage in any Season causes one (1) or more regular season Games not to be played, then TBS and the Telecasters shall be responsible for the two (2) Annual Fee installment payments due under Paragraph III.B immediately following the first such Game not played (the "Work Stoppage Installments") as pre-payment for any subsequent comparable substitute Games, subject, if appropriate, to any subsequent equitable adjustment to the fees due hereunder or to the revenue-sharing provisions set forth in Paragraph III.C. that may be agreed to by the parties in accordance with Paragraph XV.B.l. 3. Notwithstanding Paragraph XV.B.2, TBS and the Telecasters shall be relieved of the responsibility of making the installment payment (and any subsequent installment 42 43 payments) immediately following the second Work Stoppage Installment (the "Subsequent Installments") unless, prior to or within one week of the date that any such Subsequent Installment is (or was) due, the Work Stoppage has ceased, in which event TBS and the Telecasters shall be responsible for payment of that Subsequent Installment on the later of two (2) business days after the Work Stoppage has ceased or the date that the Subsequent Installment is due under Paragraph III.B. XVI. REPRESENTATIONS AND WARRANTIES: INDEMNITY ----------------------------------------- A. NBA represents and warrants that: 1. It is free to enter into and fully perform this Agreement and to grant the rights, licenses and privileges granted hereunder; 2. It is the owner of the copyright to all NBA game telecasts, including all telecasts of Games, pre-Game Shows, pre-Game segments, half-time segments and post-Game segments, and to all other telecasts licensed by NBA (or its related entities) and to all derivatives of those game telecasts or other telecasts. B. NBA shall indemnify and hold harmless TBS, the Telecasters, and their affiliated entities, including their respective officers, directors and employees, from and against any and an claims, damages, liabilities, costs and expenses (including reasonable attorneys' fees and court costs) caused by, or arising out of, (i) the exercise by the Telecasters of any of the rights granted hereunder or the use of any materials or services furnished to the Telecasters pursuant hereto, and (ii) any breach by NBA of 43 44 any warranty, representation or agreement of NBA hereunder; provided, however, that the Telecasters will promptly notify the NBA of any such claim or action. C. TBS and the Telecasters jointly and severally represent and warrant that: 1. Each is free to enter into and fully perform this Agreement; 2. The sale of advertising time and sponsorships constitutes the primary source of revenue earned by TNT and WTBS with respect to the Games and NBA related programming and will continue to constitute the primary source of revenue earned by TNT and WTBS with respect to the Games and NBA-relating programming during the Term; 3. TNT and WTBS (outside of the Atlanta local broadcast area) are "basic", "expanded basic" or "tier" (but not premium) cable networks, for which there are no additional or special charges to cable television systems (including STV, DBS, MDS or any similar service) and/or subscribers for receiving the Games; and 4. TBS owns all of the issued and outstanding shares of capital stock of Superstation Inc. and Turner Inc. There are no outstanding options or rights of any kind to acquire any interest of any nature in Superstation Inc. or Turner Inc., nor are there any obligations to issue any such options or rights. There are no existing arrangements that require or permit any voting on matters rebating to Superstation Inc. and Turner Inc. by or at the discretion of any person other than TBS. 44 45 5. Superstation Inc. owns all right, title and interest in and to the FCC license for, and assets used in the operation of, WTBS. Turner Inc. owns all right, title and interest in and to TNT. D. TBS and the Telecasters jointly and severally shall indemnify and hold harmless the NBA, its member clubs, NBAP, each of the affiliates of the NBA and NBAP, and the governors, officers, directors and employees of each of the foregoing, from and against any and all claims, damages, liabilities, costs and expenses (including reasonable attorneys' fees and court costs) caused by, or arising out of, (i) any breach by TBS, either of the Telecasters or any of their affiliates or subsidiaries of any warranty, representation or agreement made by or in the name of any of them hereunder, (ii) the telecast of the Games on TNT or WTBS, and (iii) the advertising for the Games or any other materials including, advertising or promotional copy, inserted in any Game telecast (but excluding advertising or promotional copy or announcements supplied to TNT or WTBS by NBA); provided, however, that NBA will promptly notify TBS of any such claims. E. Termination of this Agreement shall not affect the continuing obligations of each of the parties hereto as indemnitor hereunder. Upon the written request of an indemnitee, the indemnitor will assume the defense of any claim, demand or action against such indemnitee and will, upon request of the indemnitee, allow the indemnitee to participate in the defense thereof, such participation to be at the expense of the indemnitee. Settlement by the indemnitee without the indemnitor's prior written consent shall release the indemnitor from the indemnity as to the claim, demand or action so settled. 45 46 XVII. GOVERNING LAW ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. XVIII. MISCELLANEOUS ------------- A. No waiver by either party hereto of any breach of this Agreement by the other shall be valid unless contained in a writing signed by an authorized signatory of the waiving party which, in the case of the NBA, shall be limited to the NBA Commissioner and Deputy Commissioner, and, in the case of TBS and the Telecasters, shall be limited to the Executive Vice President of TBS. A waiver by either party of any breach of the terms and conditions of this Agreement shall not be deemed a waiver of any preceding or succeeding breach thereof. B. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter thereof, and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. This Agreement shall not be modified other than in writing, signed by each of the parties hereto. If any term or provision (or part of any provision) of this Agreement as applied to either party or to any circumstance shall be adjudged by a court to be void or unenforceable, this Agreement shall be construed and enforced as if such void or unenforceable term or provision (or part thereof) was not contained herein. XIX. NOTICE ------ An notices hereunder shall be in writing and shall be by personal delivery, facsimile transmission or by registered or certified mail, at the respective addresses of the parties 46 47 set forth below, or such other address or addresses as may be designated by either party: to the NBA: National Basketball Association, 645 Fifth Avenue, New York, New York 10022, facsimile No. (212) 888-7931, Attention: Commissioner, with copies to the Deputy Commissioner and to the Office of the General Counsel; to TBS or either of the Telecasters: Turner Broadcasting System, Inc., One CNN Center, Box 10366, Atlanta, Georgia 30348-5366, facsimile No. (404) 827-1339, Attention: President, Turner Sports, with a copy to the Office of the General Counsel. Such notice shall be deemed to have been given upon being sent, if by facsimile (with confirmation of receipt), or upon delivery to the other party, if by personal delivery or by registered or certified mail. XX. FEDERAL COMMUNICATIONS COMMISSION --------------------------------- To the extent applicable, the NBA shall conform to the requirements of Section 507 of the Federal Communications Act ("Section 507") concerning broadcast matter and disclosures required thereunder, insofar as that Section applies to persons furnishing program material for television broadcasting. The NBA shall submit to the Telecasters in writing such reports as the Telecasters may in conformity with such requirements reasonably request from time to time upon forms provided by the Telecasters. The NBA warrants and represents that no Game or related activity includes or shall include any matter for which any money, service or other valuable consideration is directly or indirectly paid, or promised to, or charged or accepted by the NBA. If applicable, the NBA shall exercise reasonable diligence to inform its employees, and other persons with whom the NBA deals directly in connection with the Games and related activities, of the requirements of Section 507; provided, however, that no act of any such employee or of any independent contractor connected with any of the Games or related activities shall constitute a breach of the provisions of this paragraph unless the NBA has actual notice 47 48 thereof. As used in this paragraph, the term "service or other valuable consideration" shall not include any service or property furnished by a sponsor or without charge or at a nominal charge for use in or in connection with the Games or related activities "unless it is so furnished in consideration for an identification in a broadcast of any person, product, service, trademark or brand name beyond an identification which is reasonably related to the use of such service or property on the broadcast", as such terms are used in Section 507. No inadvertent failure by the NBA to comply with this paragraph shall be deemed a breach of this Agreement. XXI. TICKETS ------- NBA agrees to provide TBS, upon request, with ten (10) tickets, "best available" seats, for each Game. In addition, if requested by TBS, on a "best efforts" basis, NBA agrees to attempt to provide TBS with up to four (4) additional tickets for "best remaining" seats for each Game. XXII. CUT-INS ------- A Telecaster may, in accordance with the terms of this Paragraph, join (i.e., "cut-in") any local NBA over-the-air or cable telecast of an NBA game during its simultaneous NBA coverage on TNT or WTBS of a Game. A. There shall be no more than three (3) cut-ins from any game (or from any part thereof). Such cut-ins may be taken by the Telecaster, at its discretion, in accordance with the following: 1. Two (2) cut-ins may be taken prior to the final six minutes of play in the fourth quarter of a game for up to three (3) minutes ("real" time, not "game clock" time, not including the duration of "full" time-outs); and 48 49 2. Either: (a) One (1) cut-in may be taken during the fourth quarter of a game, but prior to the start of the last (2) minutes of the quarter, for up to three (3) minutes ("real" time, not "game clock" time, not including the duration of "full" time-outs); or (b) One (1) cut-in may be taken with two (2) minutes or less remaining in a game, for the duration of the game (including overtime). 3. The Telecaster shall give (a) at least one (1) oral "courtesy" to the announcers of the game during each "cut-in"; (b) at least one (1) visual "courtesy" every three (3) minutes of the "cut-in"; and (c) one (1) visual "courtesy" during the closing sequence of telecast of the game. B. The Telecasters shall not assign, transfer or otherwise convey the right to cut-in to any other party and any attempted assignment, transfer or conveyance shall be void. XXIII. FIRST NEGOTIATION AND FIRST REFUSAL ----------------------------------- A.l. If the NBA has not first exercised its rights under Paragraph XXIII.A.2. below and TBS and the Telecasters desire to extend this Agreement beyond the 1997-98 Season, then TBS and the Telecasters shall notify the NBA to such effect on or before September 15, 1997 and the NBA shall negotiate exclusively and in good faith for a period of thirty (30) days, commencing no later than October 1, 1997, with respect to such extension (such thirty (30) day period being referred to as the "Exclusive Negotiating Period). A.2. If TBS and the Telecasters have not first exercised their rights under Paragraph XXIII.A.1. above and the NBA desires to exercise, or grant any third party the right to exercise, the cablecast rights granted to TBS and the Telecasters hereunder with respect to the 49 50 Season following the 1997-98 Season, then the NBA shall notify TBS and the Telecasters in writing, except that the NBA shall not give such notice prior to March 1, 1997. If TBS and the Telecasters desire to extend this Agreement beyond the 1997-98 Season, then they shall notify the NBA within ten (10) days of receipt of the NBA's notice, and they and the NBA shall then enter into an Exclusive Negotiating Period commencing five (5) days following receipt by NBA of such extension notice. If TBS and the Telecasters do not give such extension notice during such ten (10) day period, they shall have no further rights with respect to any period after the term. A.3. Notwithstanding Paragraphs XXIII.A.1. and 2. above (and without limiting the NBA's rights during an Exclusive Negotiating Period), nothing in this Agreement shall require the NBA to grant (or offer to grant) the right to telecast NBA games on both WTBS and TNT. B. If the parties fail to reach agreement by the end of the Exclusive Negotiating Period, the NBA shall give a notice stating the terms and conditions upon which it is then willing to extend this Agreement to TBS and the Telecasters (or whichever of them it wishes to contract with) (the recipients of the notice being the "Offerees"). Such notice shall contain an offer in writing (herein called the "Offer") to contract on such terms and conditions. The Offerees shall have a period of seven (7) business days in which to accept the Offer. If the Offerees do not accept the Offer and the NBA desires to enter into an agreement with a national cable network with respect to the telecast of NBA games, the NBA may do so, but in no instance on terms and conditions less favorable to the NBA than those contained in the Offer without in each such instance notifying the Offerees of such less favorable terms and conditions. Each such notice shall contain an offer in writing (herein called a "Revised Offer") to contract with the Offerees on such terms. The Offerees shall have four (4) business days in which to accept such Revised Offer. If the Offerees do not accept a Revised Offer, the NBA may enter into an agreement with a 50 51 national cable network with respect to the telecast of NBA games if the terms and conditions are no less favorable to the NBA than those contained in the Revised Offer. XXIV. PERFORMANCE BY TELECASTERS AND AFFILIATES ----------------------------------------- Without limiting the obligations of any party under this Agreement, TBS shall cause each of the Telecasters, and TBS and the Telecasters shall cause their respective affiliates, subsidiaries and divisions including, but not limited to, WTBS and TNT), to comply with and perform all terms and obligations of this Agreement applicable to (or in the name of) each of them. 51 52 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. TURNER BROADCASTING SYSTEM, INC. By /s/ Terence McGuirk ----------------------------- SUPERSTATION, INC. By /s/ Terence McGuirk ----------------------------- TURNER NETWORK TELEVISION, INC. By /s/ Terence McGuirk ----------------------------- NATIONAL BASKETBALL ASSOCIATION By /s/ David J. Stern ----------------------------- 52 EX-10.38 4 TBS 1993 STOCK OPTION PLAN 1 EXHIBIT 10.38 TURNER BROADCASTING SYSTEM, INC. 1993 STOCK OPTION PLAN Section 1. Purpose ------- The purpose of the Plan is to promote the interests of the Company and its shareholders by providing a means for selected Key Employees to acquire a proprietary interest in the Company, thereby strengthening the Company's ability to attract capable management personnel and providing an inducement for Key Employees to remain in the employ of the Company or its Subsidiaries and to perform at their maximum levels. It is intended that Options granted pursuant to this Plan may constitute Incentive Stock Options or Nonqualified Stock Options, as hereinafter set forth. Section 2. Definitions ----------- Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth below: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. (c) "Committee" shall mean the Stock Option and Compensation Committee of the Board, appointed by the Board to administer the Plan and perform the functions set forth in Section 3 of this Plan. (d) "Common Stock" shall mean the Class B Common Stock, par value $.0625 per share, of the Company, and any other stock or securities resulting from the adjustment thereof or substitution therefor as described in Section 14 of this Plan. (e) "Company" shall mean Turner Broadcasting System, Inc., a Georgia corporation. (f) "Fair Market Value" with respect to the Common Stock as of any date shall mean (i) in the event the Common Stock is listed on a national securities exchange, the closing price as reported for composite transactions on that date, or, if no sales occurred on that date, then the closing price on the next preceding date on which such sales 2 of Common Stock occurred; (ii) in the event the Common Stock is not listed on a national securities exchange, the mean between the high bid and low asked prices reported for shares of Common Stock traded over-the-counter on that date, or, if no bid and asked prices were reported on that date, then the mean between the high bid and low asked prices on the next preceding date on which such prices were reported; or (iii) in the event there are no over-the-counter prices for the Common Stock and it is not listed on a national securities exchange, the fair market value as determined by the Committee in its discretion. (g) "Incentive Stock Option" shall mean an Option granted under the Plan and designated as such by the Committee which meets the requirements of Section 422 of the Code. (h) "Key Employee" shall mean a regular employee, whether or not a director, of the Company or a Subsidiary who is an officer or holds a managerial or other key position, as determined by the Committee, and who, in the judgment of the Committee, has demonstrated a capacity for making a substantial contribution to the success of the business of the Company or a Subsidiary. (i) "Nonqualified Stock Option" shall mean an Option granted under the Plan other than an Incentive Stock Option. (j) "Option" shall mean, unless otherwise specifically limited under any provision of this Plan, both an Incentive Stock Option and a Nonqualified Stock Option granted pursuant to this Plan. (k) "Option Price" shall mean the price at which Common Stock may be purchased under an Option, as provided in Section 7(d) of this Plan. (l) "Optionee" shall mean a Key Employee granted an Option under the Plan. (m) "Parent" shall mean any corporation which qualifies as a parent corporation of the Company within the meaning of Section 424(e) of the Code. (n) "Plan" shall mean the Turner Broadcasting System, Inc. 1993 Stock Option Plan. (o) "Stock Option Agreement" shall mean the written agreement between an Optionee and the Company evidencing the grant of an Option and setting forth the terms and conditions of the grant. 2 3 (p) "Subsidiary" shall mean any corporation which qualifies as a subsidiary corporation of the Company within the meaning of Section 424(f) of the Code. (q) "Surrender Right" shall mean a right to surrender to the Company for cancellation all or a portion of an Option granted under the Plan and to receive in exchange therefor shares of the Company's Common Stock, as hereinafter provided in Section 9 of this Plan. (r) "Ten Percent Shareholder" shall mean an Optionee who, at the time an Incentive Stock Option is to be granted to him, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its Parent (if any) or Subsidiaries (as such ownership is defined in Section 424(d) of the Code). Section 3. Administration of the Plan -------------------------- (a) Committee. The Plan shall be administered by the --------- Committee, which shall consist of two or more directors of the Company appointed by the Board. The members of the Committee shall not be eligible to receive Options and shall be "disinterested persons" as defined in Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"). The members of the Committee shall serve at the pleasure of the Board, which shall have the power, at any time and from time to time, to remove members from the Committee or to add members thereto. Vacancies on the Committee shall be filled by action of the Board. (b) Duties and Powers of the Committee. The Committee ---------------------------------- shall have the full power and authority, in its sole and absolute discretion, but subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority (i) to grant Options which have received any requisite approval of the Board and to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Nonqualified Stock Options; (ii) to determine the employees to whom, and the time or times at which, Options shall be granted; (iii) to determine the number of shares of Common Stock to be covered by each Option; (iv) to determine which Options (if any) shall be accompanied by Surrender Rights; (v) to determine the Option Price of Common Stock subject to an Option; (vi) to determine the duration of the exercise period of Options and the time or times at which Options may be exercised and the extent of exercisability of Options; 3 4 (vii) to determine the terms and provisions of Stock Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan, including such terms and provisions as shall in the judgment of the Committee be necessary or advisable in order to conform to any applicable laws or regulations, as the same may be amended from time to time; and (viii) to make all other determinations necessary or advisable for the administration of the Plan. Subject to the express provisions of the Plan, the Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Stock Option Agreement in such manner and to the extent it shall determine in order to carry out the purposes of the Plan. The Committee shall have full power and authority to construe and interpret the Plan and the respective Stock Option Agreements and to establish, amend or rescind such rules, regulations and procedures as the Committee deems necessary or appropriate for the proper administration of the Plan. The determinations of the Committee on the foregoing matters and any other matters arising in connection with the construction, administration, interpretation and effect of the Plan and of the Committee's rules and regulations thereunder shall (except as otherwise specifically provided in the Plan) be final, binding and conclusive. (c) Committee Meetings and Actions. The Committee may ------------------------------ select one of its members as Chairman. The Committee shall hold its meetings at such times and places as it shall determine. All decisions and determinations of the Committee shall be made by not less than the affirmative vote of a majority of its members. Actions may be taken by the Committee at a duly convened meeting (including a meeting by telephone conference call) or by unanimous written consent. Section 4. Eligibility ----------- Options under the Plan may be granted only to Key Employees of the Company and its Subsidiaries. A director of the Company or of a Subsidiary who is not also a Key Employee shall not be eligible to receive an Option under this Plan. More than one Option may be granted to the same Optionee and be outstanding concurrently hereunder; provided, however, that the aggregate number of shares of Common Stock for which Options may be granted to any individual during any calendar year may not, subject to adjustment as provided in Section 14 hereof, exceed ( )% of the shares of Common Stock reserved for the purposes of the Plan in accordance with the provisions of Section 5 hereof. 4 5 Section 5. Shares Subject to the Plan -------------------------- (a) Aggregate Number of Shares Available. Subject to the ------------------------------------ adjustments provided for in Section 14 of this Plan, the aggregate number of shares of Common Stock for which Options may be granted under the Plan shall be 5,000,000 shares. Shares delivered by the Company pursuant to exercises of Options or Surrender Rights may be authorized but unissued shares of Common Stock, issued shares of Common Stock which have been reacquired by the Company, or a combination thereof, as the Board or the Committee shall from time to time determine. (b) Effect of Expiration of Options. In the event that ------------------------------- any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full or surrendered in full in connection with the exercise of a related Surrender Right, the shares of Common Stock subject to but not issued under such Option shall again be available for the granting of Options under the Plan. (c) Effect of Exercises. If all or any portion of an ------------------- Option is exercised or is surrendered pursuant to the exercise of a Surrender Right, the shares with respect to which such Option or such Surrender Right is exercised shall not thereafter be available for the granting of other Options under the Plan. Shares of Common Stock delivered by the Company upon the exercise of a Surrender Right shall not be charged against the number of shares of Common Stock available for the grant of Options. Section 6. Stock Option Agreements ----------------------- Each Option shall be evidenced by a written Stock Option Agreement which shall be executed by the Company and the Optionee, containing such terms and conditions, not inconsistent with the Plan, as shall be determined by the Committee. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions, among others, as may be necessary in the opinion of the Committee to qualify them as incentive stock options under the Code. Section 7. Terms and Conditions of Options ------------------------------- Each Option granted under the Plan shall comply with and be subject to the following terms and conditions, as well as such other terms and conditions as may be determined by the Committee and specified in the related Stock Option Agreement: (a) Number of Shares. The number of shares of Common ---------------- Stock to which an Option relates shall be determined by the 5 6 Committee and specified in the related Stock Option Agreement. (b) Type of Option. Each Stock Option Agreement shall -------------- specify the type of Option granted and evidenced thereby, i.e., whether the Option is an Incentive Stock Option or a Nonqualified Stock Option. (c) Date of Grant; Exercise Period. The date of grant of ------------------------------ any Option shall be the date on which the Committee shall award the Option (or the earlier date, if applicable, that the Board specifically approves such grant) if an immediate grant of such Option is contemplated, or the date contemplated as the date of grant if the Committee imposes a condition on the granting of such Option. Options granted under the Plan shall be for such periods as may be determined by the Committee and set forth in the related Stock Option Agreements, subject to the provisions of Section 10 hereof regarding early termination upon the occurrence of certain events and subject to the further provisions of this paragraph (c). The exercise period of an Incentive Stock Option shall not exceed ten (10) years from the date of grant of such Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, such period shall not exceed five (5) years from the date of grant. Subject to the further provisions of this paragraph (c) regarding Incentive Stock Options, the Committee shall have authority to prescribe in any Stock Option Agreement that the Option evidenced thereby may be exercised in full or in part as to any number of shares subject thereto at any time or from time to time during the term of the Option, or in such installments at such times during said term as the Committee may prescribe. The aggregate Fair Market Value (determined at the time an Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other plans of the Company and its Parent (if any) and Subsidiaries) shall not exceed $100,000. Except as otherwise provided in Section 10 of this Plan, an Option may not be exercised in whole or in part unless the Optionee is, at the time of such exercise, an employee of the Company or a Subsidiary. (d) Option Price. The Option Price per share of the ------------ Common Stock subject to an Option granted under the Plan shall be determined by the Committee at the time the Option is granted, and shall be subject to the following conditions: 6 7 (i) Nonqualified Stock Options - The Option Price -------------------------- per share of Common Stock subject to a Nonqualified Stock Option may be less than the Fair Market Value per share of the Common Stock on the date of grant, but shall not be less than the par value per share of Common Stock. (ii) Incentive Stock Options - The Option Price per ----------------------- share of Common Stock subject to an Incentive Stock Option shall not be less than the greater of (a) 100% of the Fair Market Value per share of the Common Stock on the date of grant, or (b) the par value per share of the Common Stock; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the Option Price per share shall not be less than the greater of (x) 110% of the Fair Market Value per share of Common Stock on the date of grant, or (y) the par value per share of the Common Stock. Section 8. Method of Exercise; Payment of Option Price ------------------------------------------- (a) Method of Exercise. An Option may be exercised as to ------------------ any or all full shares of Common Stock as to which the Option has become exercisable in accordance with the terms of the related Stock Option Agreement and the provisions of this Plan by delivering to the Company written notice of such exercise in the manner hereinafter specified in Section 19; provided, however, that an Option may not be exercised at any one time as to less than l,000 shares (or such number of shares as to which the Option is then exercisable if such number of shares is less than 1,000 shares). Such written notice shall specify the number of shares of Common Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price for such shares. The date of exercise of an Option or portion thereof shall be the date of receipt by the Company of such written notice as determined in accordance with the provisions of Section 19 of the Plan. (b) Payment of Option Price. Payment for shares ----------------------- purchased upon exercise of an Option may be made (i) in cash (including a certified check, bank draft or money order), or (ii) with the approval of the Committee, by delivering to the Company shares of Common Stock already owned by the Optionee ("Previously Held Shares") having a Fair Market Value (determined as of the day preceding the date on which the Option is 7 8 exercised) equal to the cash Option Price of the shares of Common Stock as to which the Option is being exercised, or (iii) with the approval of the Committee, by a combination of the methods described in (i) and (ii) above, or (iv) with the approval of the Committee, by any other method or in any other form authorized by the Committee and reflected in the related Stock Option Agreement or in any written notice relative thereto as may be from time to time delivered by the Committee to the Optionee. Section 9. Surrender Rights ---------------- (a) Grant of Surrender Rights. The Committee shall have ------------------------- the authority to grant Surrender Rights to Optionees with respect to all or any portion of an Option (the "Related Option"). If the Related Option is a Nonqualified Stock Option, a Surrender Right may be granted either at the time the Related Option is granted or at any time thereafter prior to the exercise, termination or cancellation of such Related Option. If the Related Option is an Incentive Stock Option, a Surrender Right may be granted only at the time the Related Option is granted. Surrender Rights shall be evidenced either by the Stock Option Agreement entered into in connection with the grant of the Related Option or by a separate agreement between the Company and an Optionee. (b) Exercises of Surrender Rights. A Surrender Right ----------------------------- shall entitle the Optionee to surrender to the Company for cancellation all or a portion of the Related Option and to receive in payment therefor that number of shares of Common Stock (rounded to the nearest whole number) having an aggregate Fair Market Value equal to the excess, if any, of the Fair Market Value of the shares of Common Stock subject to the Related Option or portion thereof surrendered over the aggregate Option Price of the shares of Common Stock subject to the Related Option or portion thereof surrendered. The Fair Market Value of the shares covered by the surrendered portion of a Related Option shall be determined as of the day preceding the date of the exercise of the Surrender Right, and any shares of Common Stock delivered by the Company in payment pursuant to this Section 9 shall be valued at their Fair Market Value on the day preceding the date of such exercise. A Surrender Right shall be exercisable only at the same time or times and to the same extent and subject to the same conditions as the Related Option, except that the 8 9 Committee may prescribe additional conditions and limitations on the exercise of a Surrender Right. In addition, in the case of a Surrender Right granted in respect of an Incentive Stock Option, such Surrender Right shall be exercisable only when the Fair Market Value per share of Common Stock exceeds the Option Price per share. A Surrender Right shall be exercisable only by delivering written notice to the Company of such exercise in the manner hereinafter specified in Section 19. The date of exercise of a Surrender Right or portion thereof shall be the date of receipt by the Company of such notice as determined in accordance with the provisions of Section 19 of the Plan. (c) Effect of Exercise of Surrender Right or Related ------------------------------------------------ Option. Upon the exercise of a Surrender Right, the Related Option ------ shall cease to be exercisable to the extent of the shares of Common Stock with respect to which such Surrender Right is exercised, but shall be considered to have been exercised to that extent for purposes of determining the number of shares of Common Stock available for the grant of further Options pursuant to the Plan. Upon the exercise or termination of a Related Option, the Surrender Right with respect to such Related Option shall terminate to the extent of the shares of Common Stock with respect to which the Related Option was exercised or terminated. Section 10. Death, Disability or Other Termination of Employment ---------------------------------------------------- (a) Death. In the event an Optionee dies (i) while in ----- the employ of the Company or a Subsidiary or (ii) within three (3) months of the termination of such employment (other than termination for cause or voluntary termination without the consent of the Company or the Subsidiary, as the case may be), his Option may be exercised, solely to the extent that the Optionee was entitled to exercise the Option at the date of his death or, if earlier, the date of his termination, by his beneficiary as designated in writing by the Optionee pursuant to Section 15 of the Plan, or, if no such designation has been made, by the person or persons to whom Optionee's rights under the Option shall pass by will or the laws of descent and distribution, at any time or from time to time within one (l) year after the date of Optionee's death or prior to the expiration of the period for which the Option was granted, whichever is the shorter period. (b) Disability. In the event an Optionee's employment by ---------- the Company or a Subsidiary is terminated because of the Optionee's permanent disability, the Optionee may exercise his Option, solely to the extent that he was entitled to do so at the date of termination of his employment, at any time or from time to time within one (l) 9 10 year after the date of such termination of employment or prior to the expiration of the period for which the Option was granted, whichever is the shorter period. (c) Other Termination of Employment. In the event the ------------------------------- Optionee's employment by the Company or a Subsidiary is terminated other than by death or permanent disability as provided by paragraphs (a) and (b), respectively, of this Section 10 and other than for cause or by the voluntary action of the Optionee without the consent of the Company or Subsidiary employing the Optionee, the Optionee may exercise his Option, solely to the extent that he was entitled to do so at the date of termination of his employment, at any time or from time to time within ninety (90) days after the date of such termination of employment or prior to the expiration of the period for which the Option was granted, whichever is the shorter period. In the event the Optionee's employment by the Company or a Subsidiary is terminated for cause or by the voluntary action of the Optionee without the consent of the Company or Subsidiary employing the Optionee, his Option shall terminate at the date of termination of his employment. (d) Committee Discretion. Notwithstanding the provisions -------------------- of paragraphs (a), (b) or (c) of this Section 10, the Committee, in its sole and absolute discretion, may, at the date an Option is granted or thereafter, establish different terms and conditions pertaining to the effect on that Option of the death, disability or other termination of employment of the Optionee, to the extent permitted by applicable federal and state law. (e) Failure to Exercise. To the extent an Option or any ------------------- portion thereof is not exercised within the limited period provided in paragraphs (a), (b), (c) or (d) of this Section 10, whichever is applicable, all rights pursuant to such Option will cease and terminate at the expiration of such period. (f) Matters Relating to Termination of Employment. The --------------------------------------------- Committee in its absolute discretion shall determine the effect of all matters and questions relating to the termination of employment of an Optionee, including, but not limited to, questions as to whether a termination of employment resulted from permanent disability or was voluntary or involuntary on the part of the Optionee and questions of whether particular leaves of absence constitute terminations of employment. 10 11 Section 11. Modification, Extension and Renewal of Options ---------------------------------------------- Subject to the terms and conditions and within the limitations of the Plan, the Committee in its discretion may modify, extend, or renew outstanding Options granted under the Plan, or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options hereunder in substitution therefor. A modification granting a Surrender Right shall not be deemed to be the grant of a new Option for purposes of the Plan. Notwithstanding the foregoing, however, no modification (other than adjustments as provided by Section 14 hereof) of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted to such Optionee. If the terms of an Incentive Stock Option are "modified, extended or renewed" within the meaning of Section 424(h) of the Code and interpretations thereunder, such modification, extension or renewal shall be considered the granting of a new Incentive Stock Option. Section 12. Withholding Taxes ----------------- The Company shall be entitled to require, as a condition to its delivery of shares of Common Stock upon the exercise of an Option or Surrender Right, that the Optionee pay to the Company an amount sufficient to satisfy all present or estimated future federal, state and local withholding tax requirements related thereto. Subject to the further provisions of this Section 12 and to the disapproval of the Committee, an Optionee may elect to satisfy applicable withholding tax liabilities by (i) having the Company withhold from the shares of Common Stock otherwise issuable to the Optionee upon his exercise of an Option or Surrender Right that number of shares of Common Stock having a Fair Market Value on the day preceding the date of such exercise sufficient to satisfy the amount of such tax liabilities or (ii) delivering to the Company that number of Previously Held Shares having a Fair Market Value on the day preceding the date of such exercise sufficient to satisfy the amount of such tax liabilities. Any such election will be irrevocable and must be made prior to the date the Option or Surrender Right exercise becomes taxable. In addition, if the Optionee is a director or an officer of the Company within the meaning of Section 16(b) of the 1934 Act, such election may not be made within six months of the grant of the Option (except that this limitation will not apply in the event of the death or disability of the Optionee prior to the expiration of the six-month period), and such election shall be made either in 11 12 the ten-day "window period" following the release of the Company's quarterly or annual summary earnings statement as provided by Rule 16b-3(e)(3) under the 1934 Act, or at least six months prior to the date the Option or Surrender Right exercise becomes taxable. The Company intends that this Section 12 shall comply with the requirements of Rule 16b-3 under the 1934 Act, as the same may be interpreted or amended from time to time during the term of the Plan. Should any provision of this Section 12 not be necessary to comply with the requirements of the Rule or should any additional provisions be necessary for this Section 12 to so comply, the Committee may amend the Plan to add to or modify the provisions of the Plan accordingly. Section 13. Investment Representation ------------------------- Each Stock Option Agreement shall provide that the Committee may require the Optionee (or any person exercising the Optionee's rights pursuant to Section 10(a) of the Plan) to furnish to the Company, as a condition precedent to any exercise of the Option or Surrender Right (if available), a written agreement in such form as the Committee shall prescribe in which the Optionee or such other person represents and agrees that any and all shares of Common Stock to be acquired upon such exercise are being acquired for investment and not with a view to the resale or distribution thereof and makes such further representations as may in the judgment of the Committee be necessary or appropriate to ensure compliance with applicable federal or state securities laws. Certificates for shares of Common Stock to be delivered to an Optionee upon his exercise of an Option or Surrender Right may, when issued, bear such legends or statements referring to the foregoing representations and agreements as the Committee, in its discretion, shall deem necessary or appropriate. Section 14. Adjustment Upon Changes in Capitalization ----------------------------------------- The total number and character of shares available for Options under the Plan, the number and character of shares subject to outstanding Options and the Option Price shall be appropriately adjusted by the Committee in the event of any change in the number or character of outstanding shares of Common Stock resulting from a stock dividend, subdivision or combination of shares, or reclassification. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Committee may make such adjustments with respect to Options under the Plan and take such other action as it deems necessary or appropriate to reflect, or in anticipation of, such merger, consolidation or tender offer, including without limitation the substitution of new Options, the adjustment of 12 13 outstanding Options, the acceleration of Options, or the removal of limitations or restrictions on outstanding Options. Section 15. Nontransferability ------------------ No Option granted under the Plan shall be transferable by an Optionee otherwise than by will or by the laws of descent and distribution, and an Option may be exercised, during the lifetime of the Optionee, only by the Optionee. An Optionee may during his or her lifetime designate in writing a beneficiary to receive his or her Option in the event of Optionee's death prior to exercise of the Option. Section 16. No Right to Continued Employment -------------------------------- Nothing in this Plan or in any Option granted hereunder shall confer upon an Optionee any right to continue in the employ of the Company or a Subsidiary nor interfere or affect in any way the right of the Company or a Subsidiary to terminate an Optionee's employment at any time for any reason. Section 17. Rights as a Shareholder ----------------------- An Optionee shall have no rights as a shareholder with respect to any shares of Common Stock subject to his Option until the date of issuance to him of a stock certificate or certificates for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 14 hereof. Section 18. Compliance with Law and Other Conditions ---------------------------------------- The obligation of the Company to issue or deliver shares of Common Stock upon the exercise of Options or Surrender Rights shall be subject to all applicable laws, regulations, rules and approvals of applicable governmental and regulatory authorities. Notwithstanding any other provisions of this Plan or any Stock Option Agreements, the Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock purchased upon the exercise of an Option or Surrender Right prior to the fulfillment of the following conditions: (i) The listing, or approval for listing upon notice of issuance, of such shares on the American Stock Exchange, Inc. or such other securities exchange on which the Common Stock is then listed; (ii) The registration or other qualification of such shares under any state or federal securities law 13 14 or regulation which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) The obtaining of any other consent, approval, permit or other clearance from any state or federal governmental or regulatory agency which the Committee shall, in its absolute discretion upon the advice of counsel, determine to be necessary or advisable. With respect to Options and Surrender Rights granted to any Optionee who is an officer of the Company or is otherwise subject to Section 16 of the 1934 Act, the Committee may, in its absolute discretion at the time of the granting of an Option or Surrender Right or the exercise thereof, make such provisions as may be necessary to assure compliance with Rule 16b-3 under the 1934 Act. Section 19. Notices ------- Whenever any notice is required or permitted to be given under the Plan or any Stock Option Agreement, such notice must be in writing and personally delivered or sent by courier or by mail. Any such notice shall be deemed effectively given or delivered upon personal delivery or twenty-four hours after delivery to a courier service which guarantees overnight delivery or five (5) days after deposit with the U.S. Post Office, by registered or certified mail, return receipt requested, postage prepaid, addressed to the person who is to receive such notice at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Company or an Optionee may change, at any time and from time to time, by written notice to the other, the address which it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Company and each Optionee shall specify as its or his address for receiving notices the address set forth in the Stock Option Agreement pertaining to the shares of Common Stock to which such notice relates. Section 20. Amendment, Suspension or Termination of the Plan ------------------------------------------------ The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee; provided, however, that the Board or the Committee shall not, without the approval of the holders of a majority of the outstanding shares of the Company's stock entitled to vote thereon, effect any change to the Plan (other than through adjustment for changes in capitalization as hereinbefore provided by Section 14) which would 14 15 (i) materially increase the aggregate number of shares as to which Options may be granted under the Plan; (ii) materially increase the benefits accruing to Optionees under the Plan; (iii) materially modify the requirements as to eligibility for participation in the Plan. Further, no such amendment, suspension or termination, other than adjustments for changes in capitalization as provided in Section 14 hereof, shall adversely affect or impair any outstanding Option without the written consent of the Optionee affected thereby. Section 21. Effective Date; Duration ------------------------ (a) Effective Date. The Plan shall become effective upon -------------- the date of its adoption by the Board. (b) Duration. Unless earlier terminated by the Board or -------- the Committee pursuant to the provisions of the Plan, the Plan shall terminate on the tenth anniversary of its effective date as hereinbefore specified. No Options shall be granted under the Plan after such termination date. Section 22. Governing Law ------------- This Plan and all rights hereunder shall be construed and interpreted in accordance with the laws of the State of Georgia, to the extent not superseded by the laws of the United States. 15 EX-10.39 5 EMPLOYMENT AGREEMENT/JOHNSON 1 EXHIBIT 10.39 EMLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), made and entered into as of the 20th day of December, 1993, by and between W. THOMAS JOHNSON, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and TURNER BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee is presently employed by the Company; WHEREAS, the Board of Directors of the Company (the "Board of Directors") recognizes that Employee's contribution to the growth and success of the Company has been substantial and desires to provide for the continued employment of Employee and to make certain changes in Employee's employment arrangements with the Company that the Board of Directors has determined will reinforce and encourage Employee's continued attention and dedication to the affairs of the Company; WHEREAS, Employee is willing to commit himself to continue to serve the Company on the terms and conditions herein provided; and WHEREAS, in order to effect the foregoing, the Company and Employee wish to enter into an employment agreement on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Scope of Employment. 1.1 Employment. Subject to terms hereof, the Company hereby agrees to the continued employment of Employee, and Employee hereby accepts such continued employment. Employee shall hold the office(s) set forth on Schedule 1.1(a) hereto and, as such, shall perform the executive-level services (collectively, "Services") described on Schedule 1.1(b) hereto. Employee shall report directly to the Chief Executive Officer of the Company, currently Mr. R.E. Turner. Employee shall devote substantially all of Employee's productive business time, energy and skill (except on vacation days and holidays) to performing his obligations hereunder and shall perform his obligations hereunder diligently, faithfully and to the best of Employee's abilities. Notwithstanding the foregoing provisions, Employee shall be entitled to serve on the board of directors of any civic, 2 charitable or professional organization, provided that such service does not materially interfere or conflict with Employee's provision of the Services or his fulfillment of any of his other obligations under this Agreement. 1.2 Place of Performance. During the term of his continued employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia at the principal executive offices of the Company, except for reasonably required travel on business. 1.3 Compliance with Policies. Subject to the terms of this Agreement, during the Term, Employee shall comply in all material respects with all policies and procedures applicable to senior executives of the Company generally and to Employee specifically, including, without limitation, the Company's Code of Ethics and Business Conduct. Section 2. Term. The Term shall commence on the date of this Agreement and continue until the earlier to occur of the following: (a) the date that is four (4) years after the date of this Agreement; or (b) in the event Employee's employment is terminated pursuant to Section 6 with an effective date that is prior to the date set forth in (a), then the effective date of such termination. References in this Agreement to the "Four-Year Term" shall refer to the period of time from the date of this Agreement to the date that is four (4) years after the date of this Agreement. Section 3. Cash Compensation; Expenses. 3.1 Base Salary. Employee shall be paid a base salary (the "Base Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary (and all other payments to be made to Employee pursuant to this Section 3) shall be (a) payable on the schedule that the Company may implement from time to time for such payments, and (b) subject to any withholdings and deductions required by applicable law. 3.2 Bonus. During the Term, Employee shall be paid an annual bonus (the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The Annual Bonus shall be earned, paid, administered and governed by the terms and conditions of the Turner Incentive Plan (the "TIP") and any plan that is a successor thereto, provided, however, that the bonus amounts set forth on Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP is terminated by the Company, Employee will continue to remain eligible to receive the Annual Bonus on terms and conditions substantially similar to those of the TIP during the last year that Employee's Annual Bonus was administered and governed by the TIP. 2 3 3.3 Long-Term Incentive Plan. During the Term, Employee shall be entitled to participate in the Long-Term Incentive Plan (together with any successor plan, "LTIP"). All awards under the LTIP shall be made in accordance with and subject to the terms of all relevant LTIP documentation and shall be based upon the LTIP cycle in effect at the time of the award. The LTIP shall continue in effect during the Term. 3.4 Expense Reimbursement. The Company shall pay or reimburse Employee for all reasonable business expenses incurred or paid by Employee in the course of performing his duties hereunder (it being agreed by the parties hereto that business expenses incurred by Employee shall be deemed to be reasonable if such expenses would have been reimbursed under current practices or the expense reimbursement policy of the Company that is applicable to Employee on the date hereof). As a condition to such payment or reimbursement, however, Employee shall maintain and provide to the Company, upon the Company's request, reasonable documentation and receipts for such expenses. Section 4. Stock-Based Compensation; Special Bonus. 4.1 Stock Option Plan. During the Term, Employee shall be entitled to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan and any successor stock-based employee incentive plans (collectively, the "Stock Option Plan"). Contemporaneously with the execution of this Agreement (or as soon thereafter as reasonably practicable), Employee will be granted the shares of the Company's Class B Common Stock (the "Grant Shares") and the options to purchase shares of the Company's Class B Common Stock (the "Option Shares") under the Stock Option Plan in the number of shares described on Schedule 3.2 hereof. Contemporaneously with the execution of this Agreement, the Company and the Employee shall enter into a Stock Option Agreement in the form of Exhibit A hereto with respect to the Option Shares (the "Option Agreement"). For purposes of Employee's future participation for possible additional grants of stock options or grants under the Stock Option Plan, he will be reviewed and considered for a grant at the same time as, and on a basis and subject to terms that are consistent with, the basis and terms that govern grants to other senior executive officers of the Company, taking into account Employee's position and responsibilities. 4.2 Special Bonus. In addition to any payments made by the Company to Employee hereunder or otherwise, contemporaneously with the transfer of the Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to Employee the Special Bonus described on Schedule 3.2, less any withholding and deductions required under applicable law. 3 4 Section 5. Additional Employee Benefits. 5.1 Benefit Plans. During the Term, Employee shall be entitled to participate in all other employee benefit plans and executive compensation arrangements listed on Schedule 5.1, together with any additional plans or arrangements available to employees generally or to executives or senior executives of the Company as a group, subject in each case to terms and conditions set forth in the plan or program documentation (collectively, the "Benefit Plans"). During the Term, the Company agrees not to modify or amend any material terms of the Benefit Plans or LTIP in any respect that would cause the benefit that Employee would otherwise receive thereunder to be materially reduced unless the Company makes up for such reduction by providing Employee with supplemental benefits (or, in the Company's discretion, cash) with a value that is substantially equivalent to the reduction. 5.2 Vacation. Employee shall be entitled to at least four (4) paid weeks of vacation per year during the Term, to be accrued and taken in accordance with a policy that is no less favorable for Employee than the Company's normal vacation policy applicable to senior executive employees. 5.3 Automobile Allowance; Travel Benefits. The Company shall pay Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during the Term as an automobile allowance. To the extent such benefits are normally extended to other executive officers of the Company, during the Term, Employee shall be entitled to first class air travel for all employment-related air travel, subject to availability of first class seating on a particular flight. 5.4 Memberships. During the Term, the Company shall continue to reimburse Employee for all costs and expenses associated with the maintenance of Employee's current memberships in those business and social clubs and associations for which he is as of the date of this Agreement being reimbursed by the Company. In addition, the Company shall reimburse Employee for all costs and expenses associated with Employee's obtaining and maintaining membership in one additional club or association. 5.5 Financial Counseling. During the Term, the Company shall reimburse Employee for up to $5,000 per year for costs and expenses incurred by Employee in connection with financial and tax counseling and tax return preparation. 5.6 Company-Paid Life Insurance. In combination with life insurance currently provided at the Company's expense, during the Term, Employee shall be provided with life insurance coverage equal to 2.5 times his then current Base Salary. 4 5 5.7 Long-Term Disability Salary Replacement. During the Term, regardless of the limitations on the maximum salary level covered in the current Long-Term Disability Plan or any future plan (collectively, the "Disability Plan"), Employee shall, subject to the other provisions of the Disability Plan, be entitled to purchase insurance under the Disability Plan providing disability compensation of up to two-thirds of his then current Base Salary for no more than the maximum annual cost (adjusted on a pro rata basis to reflect the percentage increase in coverage over the standard coverage) as currently in effect under the Disability Plan. In the event that the Disability Plan does not permit the purchase of coverage of up to two-thirds of Employee's then current Base Salary or coverage is otherwise not reasonably available, the Company shall purchase or otherwise provide Employee with supplemental coverage to the extent of any shortfall (up to a maximum additional coverage to be provided by the Company of $200,000) in such coverage that may be purchased by Employee under the Disability Plan. Disability payments will commence three (3) months after Employee becomes disabled and shall continue until Employee reaches 65 years of age (whether or not Employee has retired previously) in accordance with the terms of the current Disability Plan. The disability triggering Employee's rights under this Section 5.7 must occur prior to the date of any Notice of Termination hereunder. Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled to deduct without duplication from the aggregate of compensation related or similar payments otherwise payable to Employee pursuant to this Agreement an amount equal to all disability payments received by Employee pursuant to any disability insurance, and worker's compensation and social security policies maintained by the Company. 5.8 Post Retirement Medical Benefits. Each year commencing on the date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b) Employee retires from the Company by giving notice to the Company that the Employee intends to retire and does not intend to seek other full-time employment, whichever occurs first, the Company shall reimburse Employee an amount (the "Annual Premium Amount") of up to an aggregate of Three Thousand Dollars ($3,000.00) (an amount which shall be increased each year in the manner as set forth below) for insurance premiums with respect to medical insurance covering Employee, his spouse and dependents, if any. Immediately prior to the Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the Annual Premium Amount by a fraction (expressed a percentage), the numerator of which is the most recently published "CPI" (as hereinafter defined) as of the Retirement Date and the denominator of which shall be the most recently published CPI as of the date of this Agreement. In addition, at the beginning of each calendar year thereafter, the Annual Premium Amount shall be adjusted by multiplying the then current Annual Premium Amount by a fraction (expressed as a percentage), the numerator of which shall be the most recently published CPI as of the end of the immediately preceding year and the denominator of 5 6 which shall be the numerator used in the calculation relating to the previous calendar year. For the purposes of this Agreement, "CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics, United States Department of Labor. Notwithstanding anything to the contrary in this Agreement, the benefits covered by this Section 5.8 shall not be available to Employee if Employee is terminated by the Company for "Good Cause." 5.9 Indemnification. The Company shall indemnify and hold harmless Employee if Employee is made a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, including any action or suit by or in the right of the Company (for purposes of this Section 5.9, collectively, a "Proceeding") because he is or was an officer, employee, or agent of the Company, against any judgment, settlement, penalty, fine, or reasonable expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred with respect to the Proceeding (for purposes of this Section 5.9, a "Liability"), if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Company, and, in the case of any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The Company shall indemnify Employee to the maximum extent permitted by Georgia law. Section 6. Termination. 6.1 Termination by the Company. Employee's employment hereunder may be terminated by the Company under the circumstances set forth in (a), (b) and (c) below. (a) Death or Total Disabilitv. The Company may terminate Employee's employment hereunder upon the death of Employee or Employee's total disability (total disability meaning the inability of Employee to perform substantially all of his current duties as required hereunder for a continuous period of 183 days because of a mental or physical condition, illness or injury). (b) Good Cause. The Company may terminate Employee's employment hereunder for "Good Cause." For the purposes of this Agreement, the Company shall have "Good Cause" for termination of Employee's employment only (i) if Employee is convicted of or pleads guilty to any felony (except if committed upon advice from counsel to the Company), or (ii) if Employee has engaged in conduct or activities involving moral turpitude materially damaging to the business or reputation of the Company or any Affiliate of the Company, or (iii) if Employee habitually engages in the immoderate use of alcoholic beverages or engages in the illegal use of a controlled substance; or (iv) if Employee 6 7 violates any law, rule, regulation or order of any governmental authority, thereby exposing the Company or any Affiliate of the Company (as defined in Section 9.1(a)) to potential material civil or criminal penalties unless the Employee has done so upon advice from counsel to the Company; or (v) in the event of Employee's default, gross misfeasance, fraud, embezzlement in the performance of his obligations hereunder or if Employee breaches or fails to observe the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after notice thereof from the Company or if any representation or warranty of Employee in this Agreement shall be incorrect in any material respect, or (vi) if Employee persistently and willfully fails or refuses to obey any proper written direction of the Board of Directors or Chief Executive Officer of the Company, or (vii) if Employee knowingly, and with intent, misappropriates for his own purpose and benefit, any property of the Company or any Affiliate of the Company or unlawfully appropriates any corporate opportunity of the Company or any Affiliate of the Company. (c) Discretionarv Termination. The Company shall have the right at any point during the Term to terminate the employment of Employee hereunder for any reason or for no reason; provided, however, that the Company's termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall not, for any purpose, also be construed as a termination pursuant to this Section 6.1(c). If the Company commits a breach of any of its material obligations under this Agreement and fails to cure the breach within ten (10) days of being provided written notice of the breach by Employee, then if Employee so chooses (and indicates such choice in such ten-day written notice), the Company shall be deemed to have exercised its right to terminate Employee's employment pursuant to this Section 6.1(c). 6.2 Change in Control Termination by Employee. Employee may terminate his employment for any reason within ninety (90) days after the occurrence of a Change of Control of the Company. For all purposes under this Agreement, a "Change of Control" of the Company shall be deemed to have occurred if any of the following events have occurred (a) both of the following events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer of the Company and its consolidated operations; and (ii) "Continuing Common Stock Directors" (as defined below) no longer constitute (except by reason of a temporary vacancy lasting no longer than six months among the Common Stock Directors) a majority of the Company's Board of Directors; or (b) the Company shall sell, transfer or otherwise dispose of all or substantially all of the assets of the Company or the assets, if any, identified on Schedule 6.2 hereof; or (c) the shareholders and the Board of Directors shall have approved any plan or proposal for liqidation or dissolution of the Company; or (d) R.E. Turner dies. For purposes of this Section 6.2, "Continuing Common Stock Directors" shall include only (i) all persons who are initially elected (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) to the 7 8 Company's Board of Directors as Common Stock Directors (as defined in Article XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns in excess of 50% of the voting power of all classes of the outstanding Common Stock of the Company; and (ii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) by at least a majority of the Common Stock Directors described in (i) then serving on the Company's Board of Directors; and (iii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Board) by at least a majority of the Common Stock Directors and persons then serving on the Company's Board of Directors who would constitute Continuing Common Stock Directors under either (i) or (ii). A person shall no longer be a Continuing Common Stock Director after his or her service on the Company's Board of Directors is terminated unless reelected or reappointed in the manner described in (i) - (iii) above. Until Article XII of the Company's By-laws is amended or eliminated in such a way as to eliminate the two classes of the Company's directors, of which Common Stock Directors constitute one, then all Continuing Common Stock Directors must be Common Stock Directors. For purposes of this Section 6.2, reference to the Company or the Company's Board of Directors includes the current corporation on the date hereof and any corporation which is the legal successor to the current corporation by virtue of common stock merger or share exchange, provided that such successor corporation is not the subsidiary of, or 50% or more of its common stock is not beneficially owned by, any person, corporation or legal entity other than R.E. Turner. 6.3 Termination by Employee for "Good Reason." Employee may terminate his employment hereunder for "Good Reason" (assuming he has not given the Company notice of his intention to terminate pursuant to Section 6.2) within ninety (90) days after the occurrence of any of the following events prior to the end of the Term: (i) Employee is not reelected to or is removed (other than for cause) from any of the offices set forth on Schedule 1.1(a); or (ii) Employee is not reelected to or is removed (other than for cause) from the Board of Directors of the Company; or (iii) action is taken by the Company or the Board of Directors of the Company that has the effect of divesting Employee, or materially interfering with the exercise by Employee, of authority to perform the Services; or (iv) Employee or the Company's executive offices are relocated more than thirty (30) miles from the Company's current executive offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails to obtain the written assumption of this Agreement by any successor of the Company or any assignee of all or substantially all of its assets at or prior to such succession or assignment; or (vi) the Company breaches or fails to observe any of the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after the Company has received written notice thereof from Employee, or any representation or warranty of the Company in this Agreement shall be incorrect in 8 9 any material respect. Notwithstanding anything to the contrary in this Agreement, Employee shall not be entitled to terminate for Good Reason if the Company at such time is entitled to (and has not otherwise waived its right or indicated its election not to) terminate Employee pursuant to Section 6.1(a) or 6.1(b) unless one hundred twenty (120) days has elapsed since the first date the Company could have terminated Employee pursuant to Section 6.1(a) or 6.1(b). 6.4 Other Termination by Employee. If Employee's responsibilities no longer include reporting directly to R. E. Turner, Employee may elect to terminate his employment. 6.5 Termination Date and Notice of Termination. (a) Any termination of Employee's employment by the Company or by Employee (other than termination upon the death of Employee) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. (b) "Termination Date" shall mean (i) if Employee's employment is terminated by his death, the date of his death, (ii) if Employee's employment is terminated pursuant to Section 6.1(a) hereof as a result of Employee's total disability, thirty (30) days after Notice of Termination is given (provided that, with respect to a termination pursuant to Section 6.1(a) as a result of Employee's total disability, Employee shall not have returned to the performance of duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Section 6.1(b) hereof, the date on which such Notice of Termination is given, (iv) if Employee's employment is terminated by Employee for Good Reason or by the Company pursuant to Section 6.1(c), thirty (30) days after Notice of Termination is given by Employee, and (v) if Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given. Section 7. Compensation Uon Termination or During Disability. 7.1 Incapacity. During any period in which Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental injury or illness, Employee shall continue to receive his then current full Base Salary, including the minimum increases thereto contemplated in Section 3.1, for such period until his employment is terminated pursuant to Section 6.1(a). 9 10 7.2 Termination by the Company Due to Death or Total Disability. If Employee's employment is terminated as a result of his death or his total disability under Section 6.1(a), the Company shall, in the case of Employee's death, pay to Employee's wife, or such different person as Employee designates in writing, and, in the case of Employee's total disability, pay to Employee (a) an amount equal to his then current full Base Salary, including the minimum increases thereto set forth on Schedule 3.2, through the Termination Date and during the remainder of the Four-Year Term, (b) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash equal to (i) the amount of cash that would have been awarded to Employee if Employee's Termination Date had coincided with the end of the then current LTIP cycle less (ii) a prorated amount attributable to the unexpired portion of the then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to the fiscal year that includes the Temination Date, which Adjusted Annual Bonus shall consist of an amount equal to the Annual Bonus that would otherwise be due and payable hereunder with respect to such fiscal year multiplied by a fraction, the numerator of which is the total number of days during the fiscal year that Employee was employed hereunder and the denominator of which is 365. In addition to the above payments, if Employee's employment is terminated as a result of his total disability pursuant to Section 6.1(a), the Company shall provide Employee during the remainder of the Four-Year Term with benefits substantially similar to the benefits Employee would be entitled to receive under the Benefit Plans had Employee not been terminated (or, in lieu of providing Employee such benefits, the Company may provide Employee with cash equal to the value of such benefits). Notwithstanding any provision contained herein to the contrary, the Company shall have the right to offset any amount to be paid to or benefit to be provided to Employee by the Company pursuant to clause (a) of this Section 7.2 during any particular month against amounts that will be paid to Employee during such month under the Company's Disability Plan. 7.3 Termination by Company for Good Cause. If the Employee's employment is terminated for Good Cause pursuant to Section 6.1(b), the Company shall pay Employee his then current full Base Salary through the Termination Date and such other benefits (including stock grants, stock options, LTIP, and Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the Termination Date (calculated as provided in Section 7.2). 7.4 Termination by Employee After a Change in Control. If Employee terminates his employment pursuant to Section 6.2 following a Change in Control or pursuant to Section 6.4, the Company shall pay Employee all earned and vested rights as of the Termination Date, including, without limitation, his then current Base Salary through the Termination Date, an Adjusted Annual Bonus (calculated as provided in Section 7.2), an Adjusted LTIP Award 10 11 (calculated as provided in Section 7.2) and all vested stock grants or stock options. 7.5 Termination by Employee with Good Reason or by the Company Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant to Section 6.1(c), the following provisions shall govern: (i) Base Salary Equivalent. The Company shall pay Employee an amount equal to Employee's Base Salary as shown on Schedule 3.2 for the respective years, after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. To any extent that the period in the preceding clause (B) extends past December 20, 1997, the annual amount payable pursuant to this Section 7.5(i) shall be equal to the base salary for 1997 shown on Schedule 3.2. Except as may be elected by either party pursuant to Section 9.9, payments pursuant to this Section 7.5(i) shall be at such times and in accordance with such procedures as apply to payments governed by Section 3. (ii) Annual Bonus Equivalent. The Company shall pay Employee an amount equal to Employee's bonus as shown on Schedule 3.2 for the respective years after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, with such Annual Bonus equivalents to be prorated to reflect any partial year falling within the period specified in (A) or (B), as the case may be. To any extent that the period in the preceding clause (B) extends past December 20, 1997, the annual amount payable pursuant to this Section 7.5(ii) shall be equal to the bonus amount for 1997 shown on Schedule 3.2. (iii) Adjusted LTIP Award. The Company shall pay Employee an Adjusted LTIP Award (calculated as provided in Section 7.2) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP. (iv) Acceleration of Stock Option Vesting. The Company shall cause the vesting of any Company stock options held by Employee to be accelerated to the Termination Date and provide that Employee shall be entitled to give notice of exercise of all such options for thirty (30) days after the Termination Date. 11 12 (v) Vested Plan Benefits. The Company shall pay or make available to Employee all vested benefits accrued or available under any Benefit Plan in accordance with and subject to the terms of such Benefit Plans. (vi) Miscellaneous Health, Death and Disability Benefits. The Company shall provide Employee with life insurance and other death benefits, health and medical benefits and long term disability benefits substantially similar to those benefits provided to Employee prior to the Termination Date under the Benefit Plans on Schedule 7.5(vi) after the Termination Date for a period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. (vii) Supplemental Compensation Benefits. The Company shall provide supplemental compensation benefits (current and deferred) to Employee substantially similar to those provided to Employee under the Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits shall be determined as if Employee had continued after the Termination Date to receive the same level of total compensation as in effect immediately before the Termination Date) until the end of the period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, and such supplemental benefits shall be provided to him at the same time and in the same manner as a benefit that would be payable to him under each such Benefit Plan had Employee actually continued to work until the end of such period. (viii) Office Space. The Company shall furnish Employee with office space, secretarial assistance and such other facilities and services as are provided to senior executives of the Company for a period of twelve (12) months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with the items set forth in this clause (viii) in the event that Employee begins other full time employment during such twelve-month period. (ix) Placement Services. The Company shall provide Employee with the assistance of a nationally recognized executive placement firm for a period of twelve months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with such assistance in the event that Employee begins other full time employment during such period. 12 13 7.6 Discontinuation of Benefits. Notwithstanding anything to the contrary in this Agreement, after the Termination Date, the Company shall not be required to continue to provide Employee with any benefits pursuant to Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new employment and the new employer provides Employee with equal or better coverage at no or comparable cost to Employee. Nothing in this Agreement is intended to permit Employee to receive, after the Termination Date, a greater package of benefits than he would have been entitled to receive during the same period from the Company had his employment not terminated. 7.7 Conditional Receipt of Benefits. Employee acknowledges and agrees that his right to any compensation or benefits as provided in this Agreement is conditioned on his compliance with all of his obligations in Section 9. Accordingly, Employee agrees that if he fails to comply with any covenant of his contained in Section 9 (regardless of whether such non-compliance occurs during or after the Term), he will not be entitled to any further payment by the Company of compensation or benefits (including those that have vested as of the date of such non-compliance). 7.8 No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise. Except as otherwise expressly set forth in this Section 7, no amounts due to Employee by the Company under this Section 7 shall be reduced or offset by any compensation whatsoever received by Employee from any other employment of Employee. Section 8. Representations of the Parties. The Company represents and warrants to Employee that (a) this Agreement and the Option Agreement have been duly executed and delivered by the Company, (b) the execution, delivery and performance of this Agreement and the Option Agreement by the Company has been duly authorized by all necessary corporate action on the part of the Company including all applicable committees of the Board of Directors or otherwise, (c) this Agreement and the Option Agreement constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, (d) the execution, delivery and performance of this Agreement and the Option Agreement by the Company do not and will not conflict with, violate, or constitute a breach of or default under, (i) the Articles of Incorporation or By-laws of the Company or any of its subsidiaries, (ii) any provision of law or regulations applicable to the Company or any of its subsidiaries, (iii) any provision of any indenture, agreement or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or affected, with respect to which any such conflict, violation, breach or default would render this Agreement unenforceable or would have a material adverse effect on the financial condition of 13 14 the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option Plan, (e) the Option Shares are and at all times during the period of the Option Agreement shall be available under the Plan and there is and will be no violation of Section 5(a) of the Plan with respect to the Option Shares, and (f) the Company has not received any legal advice contrary to the Company's representations and warranties set forth in this Section 8. Employee represents and warrants to the Company that (A) his execution, delivery and performance of this Agreement do not and will not conflict with, violate, or constitute a breach of or default under any provision of law or regulation applicable to him or any provision of any agreement, contract or other instrument to which he is a party or otherwise bound, (B) this Agreement constitutes the legal, valid and binding obligation of Employee, enforceable against Employee in accordance with its terms, and (C) he has not received any legal advice contrary to his representations and warranties set forth in this Section 8. Section 9. Certain Covenants. 9.1 Definitions. For the purposes of this Agreement, the following definitions shall apply: (a) "Affiliate of the Company" shall mean any corporation, partnership or other entity or enterprise which, directly or indirectly, is controlled by the Company and, if the Company becomes wholly-owned by any other corporation, partnership or other entity or enterprise ("Parent"), then "Affiliate of the Company" shall also include Parent and any corporation, partnership or other entity or enterprise which, directly or indirectly, controls, is controlled by, or is under common control with the Company or Parent. For purposes of the preceding sentence, the word "control" (including the terms "controlling," "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity or enterprise, whether through the ownership of voting securities or partnership interests, by contract or otherwise. (b) "Business" shall mean, to the extent engaged in by Turner during the Employment Term, and together with any other business engaged in by Turner during the Employment Term, any one or more of the following businesses, provided that such business is a material part of Turner's business at the date of Termination: ownership, creation, production and/or distribution of audio-visual, audio or visual programming, whether fixed on film, videotape or otherwise ("Programming") by any and all means, whether now known or hereafter created, including, without limitation, satellite transmission (of any kind), over-the-air broadcast, VHF or UHF television, microwave, wire, video cassette, radio, computer, telephone or any combination of the foregoing for ultimate viewing by the public (in public or private, with or without charges); ownership and operation of a television station; ownership, operation and distribution of cable television 14 15 entertainment program services; ownership, operation and distribution of cable television news services; syndication and licensing of films or television Programming; production and/or syndication of theatrical motion pictures; ownership of a professional baseball club; ownership of an interest in a professional basketball club; ownership of an interest in a multimedia sports network; ownership or operation of a sports or entertainment stadium or arena, the sale or marketing of Programming to distributors of Programming, such as cable television system operators, the sale of advertising time in and adjacent to Programming; the merchandising and licensing of consumer products derived from Programming; and the book publishing business. (c) "Competitive Position" shall mean: (i) Employee's direct or indirect equity ownership (excluding equity ownership of less than five percent (5%)) or control of any portion of any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business or (ii) any employment, consulting, partnership, joint venture, advisory, directorship, agency, promotional or independent contractor arrangement between Employee and any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business whereby Employee is required to or does perform services similar to the "Services" (as defined in Section 1.1) on behalf of or for the benefit of such an entity or enterprise. (d) "Confidential Information" shall mean valuable, non-public, competitively sensitive data and information relating to Turner's business, other than Trade Secrets (as defined in Section 9.1(j). (e) "Employment Term" shall mean the entire duration of Employee's employment with the Company, including Employee's employment prior to and during the Term through the Termination Date. (f) "Employment Territory" shall mean the entire continental United States. Given Employee's high level of executive responsibility with respect to Turner's business and the fact that Turner's business extends throughout the world, Employee acknowledges that Employee will be expected to perform the Services throughout the entire continental United States and beyond. (g) "Parties" shall mean collectively the Company and Employee. (h) "Trade Secrets" shall mean information or data of or about Turner, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential 15 16 customers, clients, distributees, or licenses, that: (i) derive economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from their disclosure or use; and (ii) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy. To the extent that the foregoing definition is inconsistent with a definition of "trade secret" mandated under applicable law, the latter definition shall govern for purposes of interpreting Employee's obligations under this Agreement. (i) "Turner" shall mean, collectively, the Company and all Affiliates of the Company. (j) "Work Product" shall mean work product, property, data, documentation or information or materials prepared, conceived, discovered, developed or created by Employee in connection with performing the Services or any other of his employment responsibilities during the Employment Term. 9.2 Limitation on Competition. Employee agrees that during the Employment Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position) except with the prior written permission of the Company. Employee agrees that Employee will not, anywhere in the Employment Territory, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position and except with the prior written permission of the Company) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his employment pursuant to Section 6.2 or Section 6.3; provided, however, that Employee may accept a Competitive Position or other position in the print media without violating this Section 9.2. There shall be no limitation on competition if either (i) Employee terminates his employment pursuant to Section 6.4 or (ii) notwithstanding any other provision of this Agreement, the entity controlling the Company after a Change of Control is not a Class C stockholder of the Company as of the date of this Agreement or an entity 100% owned by such a Class C stockholder. 9.3 Limitation on Soliciting Personnel. Employee agrees that, except to the extent that Employee is required to do so in connection with his employment responsibilities on behalf of the Company or except with the Company's prior, written permission, during the Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any employee, consultant, contractor or other personnel of Turner to terminate, alter or lessen that 16 17 party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner. Employee agrees that, unless he has received the Company's prior written permission to do so, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any "key" (as that term is defined in the next sentence) employee, consultant, contractor or other personnel of Turner residing at the time of the solicitation in the Employment Territory to terminate, alter or lessen that party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key" employees, consultants, contractors or other personnel are those with knowledge of or access to Trade Secrets and Confidential Information. 9.4 Trade Secrets and Confidential Information. (a) Rights to Work Product. Except as expressly provided in this Agreement, the Company alone shall be entitled to all benefits, profits and results arising from or incidental to Employee's performance of the Services. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section 101 et seq., as amended) and owned exclusively by the Company. Employee hereby unconditionally and irrevocably transfers and assigns to the Company all intellectual property or other rights, title and interest Employee may currently have (or in the future may have) by operation of law or otherwise in or to any Work Product. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate to vest complete title and ownership of any Work Product, and all associated rights, exclusively in the Company. (b) Non-disclosure Covenant. Through exercise of his rights and performance of his obligations under this Agreement Employee will be exposed to Trade Secrets and Confidential Information. Employee acknowledges and agrees that any unauthorized disclosure or use of any of the Trade Secrets or Confidential Information would be wrongful and would likely result in immediate and irreparable injury to Turner. Except as required to perform his obligations under this Agreement or except with Company's prior written permission, Employee shall not, without the express prior written consent of the Company, redistribute, market, publish, disclose or divulge to any other person or entity, or use or modify for use, directly or indirectly in any way for any person or entity: (i) any Trade Secrets at any time (during or after the Term) during which such information or data shall continue to constitute a "trade secret" under applicable 17 18 law; and (ii) any Confidential Information during the Term and until the later of (A) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b) or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4; or (B) the last day following the Termination Date on which the Employee is receiving severance benefits under Section 7.5. Employee agrees to cooperate with any reasonable confidentiality requirements of the Company. Employee shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. 9.5 Acknowledqment. The Parties acknowledge and agree that the covenants of Employee in this Section 9 (collectively, the "Protective Covenants") are reasonable as to time, scope and territory given Turner's need to protect its substantial investment in its Confidential Information, Trade Secrets and Customer relationships, and particularly given (a) the generous compensation and benefits that are to be provided Employee both before and after the Term, (b) Turner's investment of time, effort and capital in enhancing Employee's business skills and opportunities, (c) the complexity and competitive nature of the Company, and (d) that Employee has sufficient skills to find alternative, commensurate employment or consulting work in Employee's field of expertise that would not entail a violation of the Protective Covenants. The Parties further acknowledge and agree that if the nature of Employee's responsibilities for or on behalf of the Company and the geographical areas in which Employee must fulfill them materially change, the Parties will execute appropriate amendments to the scope of the Protective Covenants. The Parties also acknowledge that the Company shall have the discretion at any point to waive, in writing, Employee's full or partial compliance with any one or more of the Protective Covenants. The Company agrees to make appropriate executive officers available (before and after the Term) to review and discuss the Protective Covenants with Employee. Employee represents and warrants to the Company that during the Employment Term (up to the date of this Agreement) he has not taken any action or failed to take any action that could reasonably be construed as a breach of his covenants in this Section 9 (assuming for purposes of this sentence that the covenants in this Section 9 applied during the duration of the Employment Term). 9.6 Tolling. The running of the applicable time period of any Protective Covenant shall be tolled: (a) during the continuation of any breach by Employee of the Protective Covenant; and (b) during the pendency of any litigation involving a good faith claim by the Company that Employee has breached the Protective Covenant. 9.7 Return of Materials. At any point during the Term at the specific request of the Company, or, in any event, as promptly as practicable after Employee's employment hereunder has been terminated Employee will return to the Company all Work 18 19 Product (including any copies or reproductions thereof and any materials constituting or containing Trade Secrets or Confidential Information of the Company that are in Employee's possession or control. 9.8 Remedies. (a) Notwithstanding anything to the contrary in this Agreement, in the event of a breach by Employee of any provision of this Agreement, the Company shall have the right to set-off against any sums the Company owes Employee the amount any damages incurred or suffered by the Company as a result of the breach. Any such set-off shall not be presumed to be in full satisfaction of or as liquidated damages for or as a release of any claim for damages against Employee that may accrue to the Company as a result of the breach. Notwithstanding Section 10 below, the Parties further acknowledge that any breach or threatened breach of a Protective Covenant by Employee is reasonably likely to result in irreparable injury to the Company, and therefore, in addition to all remedies provided at law or in equity (which remedies shall be cumulative and not mutually exclusive), Employee agrees that the Company shall be entitled to file suit in a court of competent jurisdiction, to seek a temporary restraining order and a permanent injunction to prevent a breach or contemplated breach of the Protective Covenant. The existence of any claim, demand, action or cause of action of Employee against Turner, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of Employee's obligations under this Agreement. (b) The payments and benefits provided to Employee pursuant to this Agreement shall constitute Employee's sole and exclusive remedy against the Company in the event of any claim of Employee arising out of any termination of his employment by the Company. The parties agree that such payments and benefits shall constitute liquidated damages for any liability of the Company as a result of such termination, and that the value of such payments and benefits is a reasonable forecast of damages that the Employee would sustain as a result of a wrongful termination of Employee's employment. Accordingly, Employee hereby releases and discharges the Company and any of its past, current or future directors, officers or employees or other personnel from any and all liabilities, whether known or unknown, whether currently existing or arising in the future, relating to or arising out of the termination of Employee's employment with the Company, except for the Company's stated obligations under this Agreement. 9.9 Cash Out. At the end of the twelve month noncompete period pursuant to Section 9.2, either the Company or the Employee may elect, by notice within thirty (30) days of such date, to pay or receive, as the case may be, the present value of all then remaining cash payments and benefits to be paid or made available to Employee pursuant to this Agreement. The present value shall be calculated by using as a discount factor the yield 19 20 of U.S. Treasury obligations as of the date such noncompete period ends having maturities most closely approximating the last date on which such cash payments or benefits would otherwise have been paid or made available pursuant to this Agreement. The value of all benefits other than cash payments shall be determined by Towers, Perrin or such other expert in employee benefits as may be acceptable to the parties and such value converted to present value in accordance with this Section 9.9. Section 10. Arbitration. Any controversy or claim arising from, out of or relating to this Agreement, or the breach thereof (other than controversies or claims arising from, out of or relating to the provisions in Section 9), shall be determined by final and binding arbitration in Atlanta, Georgia, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, by a panel of one (1) arbitrator appointed by the American Arbitration Association. The decision of the arbitrator may be entered and enforced in any court of competent jurisdiction by either the Company or Employee. The parties indicate their acceptance of the foregoing arbitration requirement by initialing below: /s/ WHP /s/ WTJ --------------------------- --------------------------- For the Employee Company Section 11. Miscellaneous. 11.1 Bindinq Effect. This Agreement shall inure to the benefit of and shall be binding upon Employee and his executor, administrator, heirs, personal representative and assigns, and the Company and its successors and assigns; provided, however, neither party hereto shall be entitled to assign any of its rights, or delegate any of its duties (except, in the case of Employee, customary delegation of executive authority not inconsistent with this Agreement; and except, in the case of the Company, and subject to Employee's right to terminate pursuant to Section 6.2, to any person or entity acquiring all or substantially all of the assets of the Company), hereunder without the prior written consent of the other party. The Parties intend that each Affiliate of the Company shall be the beneficiary of all the Company's rights under this Agreement. 11.2 Governinq Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Georgia. 11.3 Certain Fees and Expenses. The Company shall pay, following submission of statements therefor, the reasonable fees and expenses of counsel incurred by Employee in connection with the negotiation and preparation of this Agreement and the arrangements contemplated hereby. In the event of any 20 21 arbitration, litigation or dispute whatsoever arising from a claim brought by Employee to enforce the provisions of Section 7 of this Agreement, if Employee prevails the Company shall pay, or reimburse Employee for, all reasonable legal fees and expenses incurred by Employee in connection with such litigation or dispute. Employee shall be deemed to have prevailed if he substantially obtains the relief sought, either through a judgment or the Company's voluntary action before arbitration (after it is scheduled), trial or judgment. 11.4 Headinqs. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.5 Notices. Unless otherwise agreed to in writing by the parties hereto, all communications provided for hereunder shall be in writing and shall be deemed to be given when delivered if delivered in person or by telecopy or five (5) business days after being sent by first-class mail, registered or certified, return receipt requested, with proper postage prepaid, and (a) If to Employee, addressed to: W. Thomas Johnson Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Walter W. Driver, Jr., Esquire King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 (b) If to the Company, addressed to: Mr. R.E. Turner Chairman and President Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Steven W. Korn, Esq. Vice President and General Counsel Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 21 22 or to such other person or address as shall be furnished in writing by any party to the other prior to the giving of the applicable notice or communication. 11.6 Schedules. All Schedules to this Agreement are attached and are hereby made a part of this Agreement by this reference. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 11.8 Entire Agreement. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreements to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by each of the parties hereto. 11.9 Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, territory, scope or otherwise, the Company and Employee intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. 11.10 Waiver. The waiver by either the Company or Employee to this Agreement of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach of the same provision by the other party or a waiver of a breach of another provision of this Agreement by the other party. No waiver or modification of any provision of this Agreement shall be valid unless in writing and duly executed by the party to be charged with the waiver or modification. 22 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace ------------------------------ Name: Wayne H. Pace ------------------------ Title: Vice President & ----------------------- Chief Financial Officer Attest: /s/ Steven W. Korn ----------------------- ------------------------------- Name: Steven W. Korn --------------------------------- Title: Vice President ------------------------------- EMPLOYEE /s/ W. Thomas Johnson ------------------------------ W. Thomas Johnson 23 24 W. THOMAS JOHNSON EMPLOYMENT CONTRACT SCHEDULE 1.1 (a) President, Cable News Network, Inc. Vice-President-News, Turner Broadcasting System, Inc. Director, Turner Broadcasting System, Inc. 25 W. THOMAS JOHNSON EMPLOYMENT CONTRACT SCHEDULE 1.1 (b) In charge of Headline News and CNN International. Responsible for all news divisions of Turner Broadcasting System, Inc., including overseeing newsgathering, news presentations, news standards and all operations of news divisions (accounting, finance, promotion, marketing, new technology, business news, sports news, production, operations, international news, domestic news offices, anchors, all bureaus, CNN public affairs). Reporting directly to Ted Turner, Chairman and President of Turner Broadcasting System, Inc. 26 W. THOMAS JOHNSON EMPLOYMENT CONTRACT SCHEDULE 3.2 Salary: 1994 - $700,000 1995 - $735,000 1996 - $770,000 1997 - $810,000 Bonus: 1994 - $350,000 1995 - $365,000 1996 - $385,000 1997 - $405,000 Special Bonus: $299,000 Stock Grant: 13,800 shares Class B common stock Stock Options: 300,000 shares Class B common stock at 27-1/8 dollars per share, vesting in four equal installments, 75,000 shares on December 20, 1994 and 75,000 shares on December 20 of each of 1995, 1996 and 1997. 27 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (the "Amendment") is made and entered into as of the 26th day of January, 1994 by and between W. Thomas Johnson, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee and the Company are parties to that certain employment agreement of December 20, 1993 (the "Employment Agreement"); WHEREAS, the parties desire to enter into this Amendment to amend the Employment Agreement so as to accurately reflect their original understanding and intentions with respect to a certain aspect of the Employment Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree to amend the Employment Agreement as follows: 1. All of the second sentence of Section 3.2 of the Employment Agreement beginning with the underlined phrase "provided, however," is hereby deleted and ------------------ is replaced with the following: "the provision in the TIP which affords eligible employees the opportunity to earn up to 150% of their Target Award under certain circumstances shall be applicable hereunder. Accordingly, pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual Bonus set forth on Schedule 3.2 of the Employment Agreement." 2. Except as expressly amended hereby, the terms and conditions of the Employment Agreement shall remain in full force and effect. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace ---------------------------- Its: Vice President - Finance ---------------------------- ATTEST: /s/ Steven W. Korn ------------------------- NAME: Steven W. Korn ------------------------- TITLE: Vice President ------------------------- EMPLOYEE /s/ W. Thomas Johnson -------------------------------- W. Thomas Johnson EX-10.40 6 EMPLOYMENT AGREEMENT/MCGUIRK 1 EXHIBIT 10.40 EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), made and entered into as of the 20th day of December, 1993, by and between TERENCE F. MCGUIRK, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and TURNER BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee is presently employed by the Company; WHEREAS, the Board of Directors of the Company (the "Board of Directors") recognizes that Employee's contribution to the growth and success of the Company has been substantial and desires to provide for the continued employment of Employee and to make certain changes in Employee's employment arrangements with the Company that the Board of Directors has determined will reinforce and encourage Employee's continued attention and dedication to the affairs of the Company; WHEREAS, Employee is willing to commit himself to continue to serve the Company on the terms and conditions herein provided; and WHEREAS, in order to effect the foregoing, the Company and Employee wish to enter into an employment agreement on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Scope of Employment. 1.1 Employment. Subject to terms hereof, the Company hereby agrees to the continued employment of Employee, and Employee hereby accepts such continued employment. Employee shall hold the office(s) set forth on Schedule l.l(a) hereto and, as such, shall perform the executive-level services (collectively, "Services") described on Schedule l.l(b) hereto. Employee shall report directly to the Chief Executive Officer of the Company, currently Mr. R.E. Turner. Employee shall devote substantially all of Employee's productive business time, energy and skill (except on vacation days and holidays) to performing his obligations hereunder and shall perform his obligations hereunder diligently, faithfully and to the best of Employee's abilities. Notwithstanding the foregoing provisions, Employee shall be entitled to serve on the board of directors of any civic, 2 charitable or professional organization, provided that such service does not materially interfere or conflict with Employee's provision of the Services or his fulfillment of any of his other obligations under this Agreement. 1.2 Place of Performance. During the term of his continued employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia at the principal executive offices of the Company, except for reasonably required travel on business. 1.3 Compliance with Policies. Subject to the terms of this Agreement, during the Term, Employee shall comply in all material respects with all policies and procedures applicable to senior executives of the Company generally and to Employee specifically, including, without limitation, the Company's Code of Ethics and Business Conduct. Section 2. Term. The Term shall commence on the date of this Agreement and continue until the earlier to occur of the following: (a) the date that is four (4) years after the date of this Agreement; or (b) in the event Employee's employment is terminated pursuant to Section 6 with an effective date that is prior to the date set forth in (a), then the effective date of such termination. References in this Agreement to the "Four-Year Term" shall refer to the period of time from the date of this Agreement to the date that is four (4) years after the date of this Agreement. Section 3. Cash Compensation; Expenses. 3.1 Base Salary. Employee shall be paid a base salary (the "Base Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary (and all other payments to be made to Employee pursuant to this Section 3) shall be (a) payable on the schedule that the Company may implement from time to time for such payments, and (b) subject to any withholdings and deductions required by applicable law. 3.2 Bonus. During the Term, Employee shall be paid an annual bonus (the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The Annual Bonus shall be earned, paid, administered and governed by the terms and conditions of the Turner Incentive Plan (the "TIP") and any plan that is a successor thereto, provided, however, that the bonus amounts set forth on Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP is terminated by the Company, Employee will continue to remain eligible to receive the Annual Bonus on terms and conditions substantially similar to those of the TIP during the last year that Employee's Annual Bonus was administered and governed by the TIP. -2- 3 3.3 Long-Term Incentive Plan. During the Term, Employee shall be entitled to participate in the Long-Term Incentive Plan (together with any successor plan, "LTIP"). All awards under the LTIP shall be made in accordance with and subject to the terms of all relevant LTIP documentation and shall be based upon the LTIP cycle in effect at the time of the award. The LTIP shall continue in effect during the Term. 3.4 Expense Reimbursement. The Company shall pay or reimburse Employee for all reasonable business expenses incurred or paid by Employee in the course of performing his duties hereunder (it being agreed by the parties hereto that business expenses incurred by Employee shall be deemed to be reasonable if such expenses would have been reimbursed under current practices or the expense reimbursement policy of the Company that is applicable to Employee on the date hereof). As a condition to such payment or reimbursement, however, Employee shall maintain and provide to the Company, upon the Company's request, reasonable documentation and receipts for such expenses. Section 4. Stock-Based Compensation; Special Bonus. 4.1 Stock Option Plan. During the Term, Employee shall be entitled to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan and any successor stock-based employee incentive plans (collectively, the "Stock Option Plan"). Contemporaneously with the execution of this Agreement (or as soon thereafter as reasonably practicable), Employee will be granted the shares of the Company's Class B Common Stock (the "Grant Shares") and the options to purchase shares of the Company's Class B Common Stock (the "Option Shares") under the Stock Option Plan in the number of shares described on Schedule 3.2 hereof. Contemporaneously with the execution of this Agreement, the Company and the Employee shall enter into a Stock Option Agreement in the form of Exhibit A hereto with respect to the Option Shares (the "Option Agreement"). For purposes of Employee's future participation for possible additional grants of stock options or grants under the Stock Option Plan, he will be reviewed and considered for a grant at the same time as, and on a basis and subject to terms that are consistent with, the basis and terms that govern grants to other senior executive officers of the Company, taking into account Employee's position and responsibilities. 4.2 Special Bonus. In addition to any payments made by the Company to Employee hereunder or otherwise, contemporaneously with the transfer of the Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to Employee the Special Bonus described on Schedule 3.2, less any withholding and deductions required under applicable law. -3- 4 Section 5. Additional Employee Benefits. 5.1 Benefit Plans. During the Term, Employee shall be entitled to participate in all other employee benefit plans and executive compensation arrangements listed on Schedule 5.1, together with any additional plans or arrangements available to employees generally or to executives or senior executives of the Company as a group, subject in each case to terms and conditions set forth in the plan or program documentation (collectively, the "Benefit Plans"). During the Term, the Company agrees not to modify or amend any material terms of the Benefit Plans or LTIP in any respect that would cause the benefit that Employee would otherwise receive thereunder to be materially reduced unless the Company makes up for such reduction by providing Employee with supplemental benefits (or, in the Company's discretion, cash) with a value that is substantially equivalent to the reduction. 5.2 Vacation. Employee shall be entitled to at least four (4) paid weeks of vacation per year during the Term, to be accrued and taken in accordance with a policy that is no less favorable for Employee than the Company's normal vacation policy applicable to senior executive employees. 5.3 Automobile Allowance; Travel Benefits. The Company shall pay Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during the Term as an automobile allowance. To the extent such benefits are normally extended to other executive officers of the Company, during the Term, Employee shall be entitled to first class air travel for all employment-related air travel, subject to availability of first class seating on a particular flight. 5.4 Memberships. During the Term, the Company shall continue to reimburse Employee for all costs and expenses associated with the maintenance of Employee's current membership in those business and social clubs and associations for which he is as of the date of this Agreement being reimbursed by the Company. In addition, the Company shall reimburse Employee for all costs and expenses associated with Employee's obtaining and maintaining membership in one additional club or association. 5.5 Financial Counseling. During the Term, the Company shall reimburse Employee for up to $5,000 per year for costs and expenses incurred by Employee in connection with financial and tax counseling and tax return preparation. 5.6 Company-Paid Life Insurance. In combination with life insurance currently provided at the Company's expense, during the Term, Employee shall be provided with life insurance coverage equal to 2.5 times his then current Base Salary. -4- 5 5.7 Long-Term Disability Salary Replacement. During the Term, regardless of the limitations on the maximum salary level covered in the current Long-Term Disability Plan or any future plan (collectively, the "Disability Plan"), Employee shall, subject to the other provisions of the Disability Plan, be entitled to purchase insurance under the Disability Plan providing disability compensation of up to two-thirds of his then current Base Salary for no more than the maximum annual cost (adjusted on a pro rata basis to reflect the percentage increase in coverage over the standard coverage) as currently in effect under the Disability Plan. In the event that the Disability Plan does not permit the purchase of coverage of up to two-thirds of Employee's then current Base Salary or coverage is otherwise not reasonably available, the Company shall purchase or otherwise provide Employee with supplemental coverage to the extent of any shortfall (up to a maximum additional coverage to be provided by the Company of $200,000) in such coverage that may be purchased by Employee under the Disability Plan. Disability payments will commence three (3) months after Employee becomes disabled and shall continue until Employee reaches 65 years of age (whether or not Employee has retired previously) in accordance with the terms of the current Disability Plan. The disability triggering Employee's rights under this Section 5.7 must occur prior to the date of any Notice of Termination hereunder. Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled to deduct without duplication from the aggregate of compensation related or similar payments otherwise payable to Employee pursuant to this Agreement an amount equal to all disability payments received by Employee pursuant to any disability insurance, and worker's compensation and social security policies maintained by the Company. 5.8 Post Retirement Medical Benefits. Each year commencing on the date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b) Employee retires from the Company by giving notice to the Company that the Employee intends to retire and does not intend to seek other full-time employment, whichever occurs first, the Company shall reimburse Employee an amount (the "Annual Premium Amount ") of up to an aggregate of Three Thousand Dollars ($3,000.00) (an amount which shall be increased each year in the manner as set forth below) for insurance premiums with respect to medical insurance covering Employee, his spouse and dependents, if any. Immediately prior to the Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the Annual Premium Amount by a fraction (expressed a percentage), the numerator of which is the most recently published "CPI" (as hereinafter defined) as of the Retirement Date and the denominator of which shall be the most recently published CPI as of the date of this Agreement. In addition, at the beginning of each calendar year thereafter, the Annual Premium Amount shall be adjusted by multiplying the then current Annual Premium Amount by a fraction (expressed as a percentage), the numerator of which shall be the most recently published CPI as of the end of the immediately preceding year and the denominator of -5- 6 which shall be the numerator used in the calculation relating to the previous calendar year. For the purposes of this Agreement, "CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics, United States Department of Labor. Notwithstanding anything to the contrary in this Agreement, the benefits covered by this Section 5.8 shall not be available to Employee if Employee is terminated by the Company for "Good Cause." 5.9 Indemnification. The Company shall indemnify and hold harmless Employee if Employee is made a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, including any action or suit by or in the right of the Company (for purposes of this Section 5.9, collectively, a "Proceeding") because he is or was an officer, employee, or agent of the Company, against any judgment, settlement, penalty, fine, or reasonable expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred with respect to the Proceeding (for purposes of this Section 5.9, a "Liability"), if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Company, and, in the case of any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The Company shall indemnify Employee to the maximum extent permitted by Georgia law. Section 6. Termination. 6.1 Termination by the Company. Employee's employment hereunder may be terminated by the Company under the circumstances set forth in (a), (b) and (c) below. (a) Death or Total Disability. The Company may terminate Employee's employment hereunder upon the death of Employee or Employee's total disability (total disability meaning the inability of Employee to perform substantially all of his current duties as required hereunder for a continuous period of 183 days because of a mental or physical condition, illness or injury). (b) Good Cause. The Company may terminate Employee's employment hereunder for "Good Cause." For the purposes of this Agreement, the Company shall have "Good Cause" for termination of Employee's employment only (i) if Employee is convicted of or pleads guilty to any felony (except if committed upon advice from counsel to the Company), or (ii) if Employee has engaged in conduct or activities involving moral turpitude materially damaging to the business or reputation of the Company or any Affiliate of the Company, or (iii) if Employee habitually engages in the immoderate use of alcoholic beverages or engages in the illegal use of a controlled substance; or (iv) if Employee -6- 7 violates any law, rule, regulation or order of any governmental authority, thereby exposing the Company or any Affiliate of the Company (as defined in Section 9.1(a)) to potential material civil or criminal penalties unless the Employee has done so upon advice from counsel to the Company; or (v) in the event of Employee's default, gross misfeasance, fraud, embezzlement in the performance of his obligations hereunder or if Employee breaches or fails to observe the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after notice thereof from the Company or if any representation or warranty of Employee in this Agreement shall be incorrect in any material respect, or (vi) if Employee persistently and willfully fails or refuses to obey any proper written direction of the Board of Directors or Chief Executive Officer of the Company, or (vii) if Employee knowingly, and with intent, misappropriates for his own purpose and benefit, any property of the Company or any Affiliate of the Company or unlawfully appropriates any corporate opportunity of the Company or any Affiliate of the Company. (c) Discretionary Termination. The Company shall have the right at any point during the Term to terminate the employment of Employee hereunder for any reason or for no reason; provided, however, that the Company's termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall not, for any purpose, also be construed as a termination pursuant to this Section 6.1(c). If the Company commits a breach of any of its material obligations under this Agreement and fails to cure the breach within ten (10) days of being provided written notice of the breach by Employee, then if Employee so chooses (and indicates such choice in such ten-day written notice), the Company shall be deemed to have exercised its right to terminate Employee's employment pursuant to this Section 6.1(c). 6.2 Change in Control Termination by Employee. Employee may terminate his employment for any reason within ninety (90) days after the occurrence of a "Change of Control" of the Company. For all purposes under this Agreement, a "Change of Control" of the Company shall be deemed to have occurred if any of the following events have occurred (a) both of the following events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer of the Company and its consolidated operations; and (ii) "Continuing Common Stock Directors" (as defined below) no longer constitute (except by reason of a temporary vacancy lasting no longer than six months among the Common Stock Directors) a majority of the Company's Board of Directors; or (b) the Company shall sell, transfer or otherwise dispose of all or substantially all of the assets of the Company or the assets, if any, identified on Schedule 6.2 hereof; or (c) the shareholders and the Board of Directors shall have approved any plan or proposal for liquidation or dissolution of the Company; or (d) R.E. Turner dies. For purposes of this Section 6.2, "Continuing Common Stock Directors" shall include only (i) all persons who are initially elected (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) to the -7- 8 Company's Board of Directors as Common Stock Directors (as defined in Article XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns in excess of 50% of the voting power of all classes of the outstanding Common Stock of the Company; and (ii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) by at least a majority of the Common Stock Directors described in (i) then serving on the Company's Board of Directors; and (iii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Board) by at least a majority of the Common Stock Directors and persons then serving on the Company's Board of Directors who would constitute Continuing Common Stock Directors under either (i) or (ii). A person shall no longer be a Continuing Common Stock Director after his or her service on the Company's Board of Directors is terminated unless reelected or reappointed in the manner described in (i) - (iii) above. Until Article XII of the Company's By-laws is amended or eliminated in such a way as to eliminate the two classes of the Company's directors, of which Common Stock Directors constitute one, then all Continuing Common Stock Directors must be Common Stock Directors. For purposes of this Section 6.2, reference to the Company or the Company's Board of Directors includes the current corporation on the date hereof and any corporation which is the legal successor to the current corporation by virtue of common stock merger or share exchange, provided that such successor corporation is not the subsidiary of, or 50% or more of its common stock is not beneficially owned by, any person, corporation or legal entity other than R.E. Turner. 6.3 Termination by Employee for "Good Reason." Employee may terminate his employment hereunder for "Good Reason" (assuming he has not given the Company notice of his intention to terminate pursuant to Section 6.2) within ninety (90) days after the occurrence of any of the following events prior to the end of the Term: (i) Employee is not reelected to or is removed (other than for cause) from any of the offices set forth on Schedule l.l(a); or (ii) Employee is not reelected to or is removed (other than for cause) from the Board of Directors of the Company; or (iii) action is taken by the Company or the Board of Directors of the Company that has the effect of divesting Employee, or materially interfering with the exercise by Employee, of authority to perform the Services; or (iv) Employee or the Company's executive offices are relocated more than thirty (30) miles from the Company's current executive offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails to obtain the written assumption of this Agreement by any successor of the Company or any assignee of all or substantially all of its assets at or prior to such succession or assignment; or (vi) the Company breaches or fails to observe any of the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after the Company has received written notice thereof from Employee, or any representation or warranty of the Company in this Agreement shall be incorrect in -8- 9 any material respect. Notwithstanding anything to the contrary in this Agreement, Employee shall not be entitled to terminate for Good Reason if the Company at such time is entitled to (and has not otherwise waived its right or indicated its election not to) terminate Employee pursuant to Section 6.1(a) or 6.1(b) unless one hundred twenty (120) days has elapsed since the first date the Company could have terminated Employee pursuant to Section 6.1(a) or 6.1(b). 6.4 Other Termination by Employee. If Employee's responsibilities no longer include reporting directly to R. E. Turner, Employee may elect to terminate his employment. 6.5 Termination Date and Notice of Termination. (a) Any termination of Employee's employment by the Company or by Employee (other than termination upon the death of Employee) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. (b) "Termination Date" shall mean (i) if Employee's employment is terminated by his death, the date of his death, (ii) if Employee's employment is terminated pursuant to Section 6.1(a) hereof as a result of Employee's total disability, thirty (30) days after Notice of Termination is given (provided that, with respect to a termination pursuant to Section 6.1(a) as a result of Employee's total disability, Employee shall not have returned to the performance of duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Section 6.1(b) hereof, the date on which such Notice of Termination is given, (iv) if Employee's employment is terminated by Employee for "Good Reason" or by the Company pursuant to Section 6.1(c), thirty (30) days after Notice of Termination is given by Employee, and (v) if Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given. Section 7. Compensation Upon Termination or During Disability. 7.1 Incapacity. During any period in which Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental injury or illness, Employee shall continue to receive his then current full Base Salary, including the minimum increases thereto contemplated in Section 3.1, for such period until his employment is terminated pursuant to Section 6.1(a). -9- 10 7.2 Termination by the Company Due to Death or Total Disability. If Employee's employment is terminated as a result of his death or his total disability under Section 6.1(a), the Company shall, in the case of Employee's death, pay to Employee's wife, or such different person as Employee designates in writing, and, in the case of Employee's total disability, pay to Employee (a) an amount equal to his then current full Base Salary, including the minimum increases thereto set forth on Schedule 3.2, through the Termination Date and during the remainder of the Four-Year Term, (b) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash equal to (i) the amount of cash that would have been awarded to Employee if Employee's Termination Date had coincided with the end of the then current LTIP cycle less (ii) a prorated amount attributable to the unexpired portion of the then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to the fiscal year that includes the Termination Date, which Adjusted Annual Bonus shall consist of an amount equal to the Annual Bonus that would otherwise be due and payable hereunder with respect to such fiscal year multiplied by a fraction, the numerator of which is the total number of days during the fiscal year that Employee was employed hereunder and the denominator of which is 365. In addition to the above payments, if Employee's employment is terminated as a result of his total disability pursuant to Section 6.1(a), the Company shall provide Employee during the remainder of the Four-Year Term with benefits substantially similar to the benefits Employee would be entitled to receive under the Benefit Plans had Employee not been terminated (or, in lieu of providing Employee such benefits, the Company may provide Employee with cash equal to the value of such benefits). Notwithstanding any provision contained herein to the contrary, the Company shall have the right to offset any amount to be paid to or benefit to be provided to Employee by the Company pursuant to clause (a) of this Section 7.2 during any particular month against amounts that will be paid to Employee during such month under the Company's Disability Plan. 7.3 Termination by Company for Good Cause. If the Employee's employment is terminated for Good Cause pursuant to Section 6.1(b), the Company shall pay Employee his then current full Base Salary through the Termination Date and such other benefits (including stock grants, stock options, LTIP, and Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the Termination Date (calculated as provided in Section 7.2). 7.4 Termination by Employee After a Change in Control. If Employee terminates his employment pursuant to Section 6.2 following a Change in Control or pursuant to Section 6.4, the Company shall pay Employee all earned and vested rights as of the Termination Date, including, without limitation, his then current Base Salary through the Termination Date, an Adjusted Annual Bonus (calculated as provided in Section 7.2), an Adjusted LTIP Award -10- 11 (calculated as provided in Section 7.2) and all vested stock grants or stock options. 7.5 Termination by Employee with Good Reason or by the Company Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant to Section 6.1(c), the following provisions shall govern: (i) Base Salary Equivalent. The Company shall pay Employee an amount equal to Employee's Base Salary as shown on Schedule 3.2 for the respective years, after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. To any extent that the period in the preceding clause (B) extends past December 20, 1997, the annual amount payable pursuant to this Section 7.5(i) shall be equal to the base salary for 1997 shown on Schedule 3.2. Except as may be elected by either party pursuant to Section 9.9, payments pursuant to this Section 7.5(i) shall be at such times and in accordance with such procedures as apply to payments governed by Section 3. (ii) Annual Bonus Equivalent. The Company shall pay Employee an amount equal to Employee's bonus as shown on Schedule 3.2 for the respective years after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, with such Annual Bonus equivalents to be prorated to reflect any partial year falling within the period specified in (A) or (B), as the case may be. To any extent that the period in the preceding clause (B) extends past December 20, 1997, the annual amount payable pursuant to this Section 7.5(ii) shall be equal to the bonus amount for 1997 shown on Schedule 3.2. (iii) Adjusted LTIP Award. The Company shall pay Employee an Adjusted LTIP Award (calculated as provided in Section 7.2) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP. (iv) Acceleration of Stock Option Vesting. The Company shall cause the vesting of any Company stock options held by Employee to be accelerated to the Termination Date and provide that Employee shall be entitled to give notice of exercise of all such options for thirty (30) days after the Termination Date. -11- 12 (v) Vested Plan Benefits. The Company shall pay or make available to Employee all vested benefits accrued or available under any Benefit Plan in accordance with and subject to the terms of such Benefit Plans. (vi) Miscellaneous Health, Death and Disability Benefits. The Company shall provide Employee with life insurance and other death benefits, health and medical benefits and long term disability benefits substantially similar to those benefits provided to Employee prior to the Termination Date under the Benefit Plans on Schedule 7.5(vi) after the Termination Date for a period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. (vii) Supplemental Compensation Benefits. The Company shall provide supplemental compensation benefits (current and deferred) to Employee substantially similar to those provided to Employee under the Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits shall be determined as if Employee had continued after the Termination Date to receive the same level of total compensation as in effect immediately before the Termination Date) until the end of the period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, and such supplemental benefits shall be provided to him at the same time and in the same manner as a benefit that would be payable to him under each such Benefit Plan had Employee actually continued to work until the end of such period. (viii) Office Space. The Company shall furnish Employee with office space, secretarial assistance and such other facilities and services as are provided to senior executives of the Company for a period of twelve (12) months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with the items set forth in this clause (viii) in the event that Employee begins other full time employment during such twelve-month period. (ix) Placement Services. The Company shall provide Employee with the assistance of a nationally recognized executive placement firm for a period of twelve months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with such assistance in the event that Employee begins other full time employment during such period. -12- 13 7.6 Discontinuation of Benefits. Notwithstanding anything to the contrary in this Agreement, after the Termination Date, the Company shall not be required to continue to provide Employee with any benefits pursuant to Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new employment and the new employer provides Employee with equal or better coverage at no or comparable cost to Employee. Nothing in this Agreement is intended to permit Employee to receive, after the Termination Date, a greater package of benefits than he would have been entitled to receive during the same period from the Company had his employment not terminated. 7.7 Conditional Receipt of Benefits. Employee acknowledges and agrees that his right to any compensation or benefits as provided in this Agreement is conditioned on his compliance with all of his obligations in Section 9. Accordingly, Employee agrees that if he fails to comply with any covenant of his contained in Section 9 (regardless of whether such non-compliance occurs during or after the Term), he will not be entitled to any further payment by the Company of compensation or benefits (including those that have vested as of the date of such non-compliance). 7.8 No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise. Except as otherwise expressly set forth in this Section 7, no amounts due to Employee by the Company under this Section 7 shall be reduced or offset by any compensation whatsoever received by Employee from any other employment of Employee. Section 8. Representations of the Parties. The Company represents and warrants to Employee that (a) this Agreement and the Option Agreement have been duly executed and delivered by the Company, (b) the execution, delivery and performance of this Agreement and the Option Agreement by the Company has been duly authorized by all necessary corporate action on the part of the Company including all applicable committees of the Board of Directors or otherwise, (c) this Agreement and the Option Agreement constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, (d) the execution, delivery and performance of this Agreement and the Option Agreement by the Company do not and will not conflict with, violate, or constitute a breach of or default under, (i) the Articles of Incorporation or By-laws of the Company or any of its subsidiaries, (ii) any provision of law or regulations applicable to the Company or any of its subsidiaries, (iii) any provision of any indenture, agreement or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or affected, with respect to which any such conflict, violation, breach or default would render this Agreement unenforceable or would have a material adverse effect on the financial condition of -13- 14 the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option Plan, (e) the Option Shares are and at all times during the period of the Option Agreement shall be available under the Plan and there is and will be no violation of Section 5(a) of the Plan with respect to the Option Shares, and (f) the Company has not received any legal advice contrary to the Company's representations and warranties set forth in this Section 8. Employee represents and warrants to the Company that (A) his execution, delivery and performance of this Agreement do not and will not conflict with, violate, or constitute a breach of or default under any provision of law or regulation applicable to him or any provision of any agreement, contract or other instrument to which he is a party or otherwise bound, (B) this Agreement constitutes the legal, valid and binding obligation of Employee, enforceable against Employee in accordance with its terms, and (C) he has not received any legal advice contrary to his representations and warranties set forth in this Section 8. Section 9. Certain Covenants. 9.1 Definitions. For the purposes of this Agreement, the following definitions shall apply: (a) "Affiliate of the Company" shall mean any corporation, partnership or other entity or enterprise which, directly or indirectly, is controlled by the Company and, if the Company becomes wholly-owned by any other corporation, partnership or other entity or enterprise ("Parent"), then "Affiliate of the Company" shall also include Parent and any corporation, partnership or other entity or enterprise which, directly or indirectly, controls, is controlled by, or is under common control with the Company or Parent. For purposes of the preceding sentence, the word "control" (including the terms "controlling", "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity or enterprise, whether through the ownership of voting securities or partnership interests, by contract or otherwise. (b) "Business" shall mean, to the extent engaged in by Turner during the Employment Term, and together with any other business engaged in by Turner during the Employment Term, any one or more of the following businesses, provided that such business is a material part of Turner's business at the date of Termination: ownership, creation, production and/or distribution of audio-visual, audio or visual programming, whether fixed on film, videotape or otherwise ("Programming") by any and all means, whether now known or hereafter created, including, without limitation, satellite transmission (of any kind), over-the-air broadcast, VHF or UHF television, microwave, wire, video cassette, radio, computer, telephone or any combination of the foregoing for ultimate viewing by the public (in public or private, with or without charges); ownership and operation of a television station; ownership, operation and distribution of cable television -14- 15 entertainment program services; ownership, operation and distribution of cable television news services; syndication and licensing of films or television Programming; production and/or syndication of theatrical motion pictures; ownership of a professional baseball club; ownership of an interest in a professional basketball club; ownership of an interest in a multimedia sports network; ownership or operation of a sports or entertainment stadium or arena, the sale or marketing of Programming to distributors of Programming, such as cable television system operators, the sale of advertising time in and adjacent to Programming; the merchandising and licensing of consumer products derived from Programming; and the book publishing business. (c) "Competitive Position" shall mean: (i) Employee's direct or indirect equity ownership (excluding equity ownership of less than five percent (5%)) or control of any portion of any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business or (ii) any employment, consulting, partnership, joint venture, advisory, directorship, agency, promotional or independent contractor arrangement between Employee and any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business whereby Employee is required to or does perform services similar to the "Services" (as defined in Section l.l) on behalf of or for the benefit of such an entity or enterprise. (d) "Confidential Information" shall mean valuable, non-public, competitively sensitive data and information relating to Turner's business, other than Trade Secrets (as defined in Section 9.1(j). (e) "Employment Term" shall mean the entire duration of Employee's employment with the Company, including Employee's employment prior to and during the Term through the Termination Date. (f) "Employment Territory shall mean the entire continental United States. Given Employee's high level of executive responsibility with respect to Turner's business and the fact that Turner's business extends throughout the world, Employee acknowledges that Employee will be expected to perform the Services throughout the entire continental United States and beyond. (g) "Parties" shall mean collectively the Company and Employee. (h) "Trade Secrets" shall mean information or data of or about Turner, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential -15- 16 customers, clients, distributees, or licenses, that: (i) derive economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from their disclosure or use; and (ii) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy. To the extent that the foregoing definition is inconsistent with a definition of "trade secret" mandated under applicable law, the latter definition shall govern for purposes of interpreting Employee's obligations under this Agreement. (i) "Turner" shall mean, collectively, the Company and all Affiliates of the Company. (j) "Work Product" shall mean work product, property, data, documentation or information or materials prepared, conceived, discovered, developed or created by Employee in connection with performing the Services or any other of his employment responsibilities during the Employment Term. 9.2 Limitation on Competition. Employee agrees that during the Employment Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position) except with the prior written permission of the Company. Employee agrees that Employee will not, anywhere in the Employment Territory, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position and except with the prior written permission of the Company) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his employment pursuant to Section 6.2 or Section 6.3; provided, however, that Employee may accept a Competitive Position or other position in the print media without violating this Section 9.2. There shall be no limitation on competition if either (i) Employee terminates his employment pursuant to Section 6.4 or (ii) notwithstanding any other provision of this Agreement, the entity controlling the Company after a Change of Control is not a Class C stockholder of the Company as of the date of this Agreement or an entity 100% owned by such a Class C stockholder. 9.3 Limitation on Soliciting Personnel. Employee agrees that, except to the extent that Employee is required to do so in connection with his employment responsibilities on behalf of the Company or except with the Company's prior, written permission, during the Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any employee, consultant, contractor or other personnel of Turner to terminate, alter or lessen that -16- 17 party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner. Employee agrees that, unless he has received the Company's prior written permission to do so, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any "key" (as that term is defined in the next sentence) employee, consultant, contractor or other personnel of Turner residing at the time of the solicitation in the Employment Territory to terminate, alter or lessen that party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key" employees, consultants, contractors or other personnel are those with knowledge of or access to Trade Secrets and Confidential Information. 9.4 Trade Secrets and Confidential Information. (a) Rights to Work Product. Except as expressly provided in this Agreement, the Company alone shall be entitled to all benefits, profits and results arising from or incidental to Employee's performance of the Services. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section 101 et seq., as amended) and owned exclusively by the Company. Employee hereby unconditionally and irrevocably transfers and assigns to the Company all intellectual property or other rights, title and interest Employee may currently have (or in the future may have) by operation of law or otherwise in or to any Work Product. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate to vest complete title and ownership of any Work Product, and all associated rights, exclusively in the Company. (b) Non-disclosure Covenant. Through exercise of his rights and performance of his obligations under this Agreement Employee will be exposed to Trade Secrets and Confidential Information. Employee acknowledges and agrees that any unauthorized disclosure or use of any of the Trade Secrets or Confidential Information would be wrongful and would likely result in immediate and irreparable injury to Turner. Except as required to perform his obligations under this Agreement or except with Company's prior written permission, Employee shall not, without the express prior written consent of the Company, redistribute, market, publish, disclose or divulge to any other person or entity, or use or modify for use, directly or indirectly in any way for any person or entity: (i) any Trade Secrets at any time (during or after the Term) during which such information or data shall continue to constitute a "trade secret" under applicable -17- 18 law; and (ii) any Confidential Information during the Term and until the later of (A) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b) or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4; or (B) the last day following the Termination Date on which the Employee is receiving severance benefits under Section 7.5. Employee agrees to cooperate with any reasonable confidentiality requirements of the Company. Employee shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. 9.5 Acknowledgment. The Parties acknowledge and agree that the covenants of Employee in this Section 9 (collectively, the "Protective Covenants") are reasonable as to time, scope and territory given Turner's need to protect its substantial investment in its Confidential Information, Trade Secrets and Customer relationships, and particularly given (a) the generous compensation and benefits that are to be provided Employee both before and after the Term, (b) Turner's investment of time, effort and capital in enhancing Employee's business skills and opportunities, (c) the complexity and competitive nature of the Company, and (d) that Employee has sufficient skills to find alternative, commensurate employment or consulting work in Employee's field of expertise that would not entail a violation of the Protective Covenants. The Parties further acknowledge and agree that if the nature of Employee's responsibilities for or on behalf of the Company and the geographical areas in which Employee must fulfill them materially change, the Parties will execute appropriate amendments to the scope of the Protective Covenants. The Parties also acknowledge that the Company shall have the discretion at any point to waive, in writing, Employee's full or partial compliance with any one or more of the Protective Covenants. The Company agrees to make appropriate executive officers available (before and after the Term) to review and discuss the Protective Covenants with Employee. Employee represents and warrants to the Company that during the Employment Term (up to the date of this Agreement) he has not taken any action or failed to take any action that could reasonably be construed as a breach of his covenants in this Section 9 (assuming for purposes of this sentence that the covenants in this Section 9 applied during the duration of the Employment Term). 9.6 Tolling. The running of the applicable time period of any Protective Covenant shall be tolled: (a) during the continuation of any breach by Employee of the Protective Covenant; and (b) during the pendency of any litigation involving a good faith claim by the Company that Employee has breached the Protective Covenant. 9.7 Return of Materials. At any point during the Term at the specific request of the Company, or, in any event, as promptly as practicable after Employee's employment hereunder has been terminated Employee will return to the Company all Work -18- 19 Product (including any copies or reproductions thereof and any materials constituting or containing Trade Secrets or Confidential Information of the Company that are in Employee's possession or control. 9.8 Remedies. (a) Notwithstanding anything to the contrary in this Agreement, in the event of a breach by Employee of any provision of this Agreement, the Company shall have the right to set-off against any sums the Company owes Employee the amount any damages incurred or suffered by the Company as a result of the breach. Any such set-off shall not be presumed to be in full satisfaction of or as liquidated damages for or as a release of any claim for damages against Employee that may accrue to the Company as a result of the breach. Notwithstanding Section 10 below, the Parties further acknowledge that any breach or threatened breach of a Protective Covenant by Employee is reasonably likely to result in irreparable injury to the Company, and therefore, in addition to all remedies provided at law or in equity (which remedies shall be cumulative and not mutually exclusive), Employee agrees that the Company shall be entitled to file suit in a court of competent jurisdiction, to seek a temporary restraining order and a permanent injunction to prevent a breach or contemplated breach of the Protective Covenant. The existence of any claim, demand, action or cause of action of Employee against Turner, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of Employee's obligations under this Agreement. (b) The payments and benefits provided to Employee pursuant to this Agreement shall constitute Employee's sole and exclusive remedy against the Company in the event of any claim of Employee arising out of any termination of his employment by the Company. The parties agree that such payments and benefits shall constitute liquidated damages for any liability of the Company as a result of such termination, and that the value of such payments and benefits is a reasonable forecast of damages that the Employee would sustain as a result of a wrongful termination of Employee's employment. Accordingly, Employee hereby releases and discharges the Company and any of its past, current or future directors, officers or employees or other personnel from any and all liabilities, whether known or unknown, whether currently existing or arising in the future, relating to or arising out of the termination of Employee's employment with the Company, except for the Company's stated obligations under this Agreement. 9.9 Cash Out. At the end of the twelve month noncompete period pursuant to Section 9.2, either the Company or the Employee may elect, by notice within thirty (30) days of such date, to pay or receive, as the case may be, the present value of all then remaining cash payments and benefits to be paid or made available to Employee pursuant to this Agreement. The present value shall be calculated by using as a discount factor the yield -19- 20 of U.S. Treasury obligations as of the date such noncompete period ends having maturities most closely approximating the last date on which such cash payments or benefits would otherwise have been paid or made available pursuant to this Agreement. The value of all benefits other than cash payments shall be determined by Towers, Perrin or such other expert in employee benefits as may be acceptable to the parties and such value converted to present value in accordance with this Section 9.9. Section 10. Arbitration. Any controversy or claim arising from, out of or relating to this Agreement, or the breach thereof (other than controversies or claims arising from, out of or relating to the provisions in Section 9), shall be determined by final and binding arbitration in Atlanta, Georgia, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, by a panel of one (l) arbitrator appointed by the American Arbitration Association. The decision of the arbitrator may be entered and enforced in any court of competent jurisdiction by either the Company or Employee. The parties indicate their acceptance of the foregoing arbitration requirement by initialing below: /s/ WHP /s/ TFM -------------------------- ------------------------ For the Employee Company Section 11. Miscellaneous. 11.1 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon Employee and his executor, administrator, heirs, personal representative and assigns, and the Company and its successors and assigns; provided, however, neither party hereto shall be entitled to assign any of its rights, or delegate any of its duties (except, in the case of Employee, customary delegation of executive authority not inconsistent with this Agreement; and except, in the case of the Company, and subject to Employee's right to terminate pursuant to Section 6.2, to any person or entity acquiring all or substantially all of the assets of the Company), hereunder without the prior written consent of the other party. The Parties intend that each Affiliate of the Company shall be the beneficiary of all the Company's rights under this Agreement. 11.2 Governing Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Georgia. 11.3 Certain Fees and Expenses. The Company shall pay, following submission of statements therefor, the reasonable fees and expenses of counsel incurred by Employee in connection with the negotiation and preparation of this Agreement and the arrangements contemplated hereby. In the event of any -20- 21 arbitration, litigation or dispute whatsoever arising from a claim brought by Employee to enforce the provisions of Section 7 of this Agreement, if Employee prevails the Company shall pay, or reimburse Employee for, all reasonable legal fees and expenses incurred by Employee in connection with such litigation or dispute. Employee shall be deemed to have prevailed if he substantially obtains the relief sought, either through a judgment or the Company's voluntary action before arbitration (after it is scheduled), trial or judgment. 11.4 Headings. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.5 Notices. Unless otherwise agreed to in writing by the parties hereto, all communications provided for hereunder shall be in writing and shall be deemed to be given when delivered if delivered in person or by telecopy or five (5) business days after being sent by first-class mail, registered or certified, return receipt requested, with proper postage prepaid, and (a) If to Employee, addressed to: Terence F. McGuirk Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Walter W. Driver, Jr., Esquire King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 (b) If to the Company, addressed to: Mr. R.E. Turner Chairman and President Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Steven W. Korn, Esq. Vice President and General Counsel Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 -21- 22 or to such other person or address as shall be furnished in writing by any party to the other prior to the giving of the applicable notice or communication. 11.6 Schedules. All Schedules to this Agreement are attached and are hereby made a part of this Agreement by this reference. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 11.8 Entire Agreement. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreements to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by each of the parties hereto. 11.9 Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, territory, scope or otherwise, the Company and Employee intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. 11.10 Waiver. The waiver by either the Company or Employee to this Agreement of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach of the same provision by the other party or a waiver of a breach of another provision of this Agreement by the other party. No waiver or modification of any provision of this Agreement shall be valid unless in writing and duly executed by the party to be charged with the waiver or modification. -22- 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace --------------------------------------- Name: Wayne H. Pace ---------------------------------- Title: Vice President & --------------------------------- Chief Financial Officer --------------------------------- Attest: /s/ Steven W. Korn ----------------------------- Name: Steven W. Korn ------------------------------- Title: Vice President ------------------------------ EMPLOYEE /s/ Terence F. McGuirk ---------------------------------- Terence F. McGuirk -23- 24 TERENCE F. MCGUIRK EMPLOYMENT CONTRACT SCHEDULE 1.1 (a) Executive Vice President, Turner Broadcasting System, Inc. President, Turner Sports, Inc. Director, Turner Broadcasting System, Inc. 25 TERENCE F. MCGUIRK EMPLOYMENT CONTRACT SCHEDULE 1.1 (b) For Turner Broadcasting System, Inc.: Responsibility for and supervision of: national and international sales and marketing for all Turner networks; cable affiliate and other distribution sales for all Turner networks; advertising sales divisions for all Turner networks; finance, accounting, treasury and legal departments; goverment affairs department; research department; public relations department; marketing department; advertising department; administrative operations; real estate operations; technological developments; satellite usage and purchases. For Turner Sports, Inc.: Responsibility for and supervision of: all sports programming for all Turner television networks; television production of all Turner Sports programming; acquisitions and rights negotiations for all Turner sports rights; all business and player personnel operations of Atlanta Braves and Atlanta Hawks. In both capacities, the senior executive officer (other than the chief executive officer) of Turner Broadcasting System, Inc., reporting directly to Ted Turner, Chairman and President of Turner Broadcasting System, Inc. 26 TERENCE F. MCGUIRK EMPLOYMENT CONTRACT SCHEDULE 3.2 Salary: 1994 - $855,000 1995 - $895,000 1996 - $940,000 1997 - $990,000 Bonus: 1994 - $645,000 1995 - $680,000 1996 - $715,000 1997 - $750,000 Special Bonus: $476,000 Stock Grant: 22,000 shares Class B common stock Stock Options - 500,000 shares Class B common stock at 27-1/8 dollars per share, vesting in four equal installments, 125,000 shares on December 20, 1994 and 125,000 shares on December 20 of each of 1995, 1996 and 1997. 27 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (the "Amendment") is made and entered into as of the 26th day of January, 1994 by and between Terence F. McGuirk, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee and the Company are parties to that certain employment agreement of December 20, 1993 (the "Employment Agreement"); WHEREAS, the parties desire to enter into this Amendment to amend the Employment Agreement so as to accurately reflect their original understanding and intentions with respect to a certain aspect of the Employment Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree to amend the Employment Agreement as follows: 1. All of the second sentence of Section 3.2 of the Employment Agreement beginning with the underlined phrase "provided, however," is hereby deleted and ------------------ is replaced with the following: "the provision in the TIP which affords eligible employees the opportunity to earn up to 150% of their Target Award under certain circumstances shall be applicable hereunder. Accordingly, pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual Bonus set forth on Schedule 3.2 of the Employment Agreement." 2. Except as expressly amended hereby, the terms and conditions of the Employment Agreement shall remain in full force and effect. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace ---------------------------- Its: Vice President - Finance ---------------------------- ATTEST: /s/ Steven W. Korn ------------------------- NAME: Steven W. Korn ------------------------- TITLE: Vice President ------------------------- EMPLOYEE /s/ Terence F. McGuirk -------------------------------- Terence F. McGuirk EX-10.41 7 EMPLOYMENT AGREEMENT/SASSA 1 EXHIBIT 10.41 EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), made and entered into as of the 1st day of January, 1994, by and between SCOTT M. SASSA, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and TURNER BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee is presently employed by the Company; WHEREAS, the Board of Directors of the Company (the "Board of Directors") recognizes that Employee's contribution to the growth and success of the Company has been substantial and desires to provide for the continued employment of Employee and to make certain changes in Employee's employment arrangements with the Company that the Board of Directors has determined will reinforce and encourage Employee's continued attention and dedication to the affairs of the Company; WHEREAS, Employee is willing to commit himself to continue to serve the Company on the terms and conditions herein provided; and WHEREAS, in order to effect the foregoing, the Company and Employee wish to enter into an employment agreement on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Scope of Employment. 1.1 Employment. Subject to terms hereof, the Company hereby agrees to the continued employment of Employee, and Employee hereby accepts such continued employment. Employee shall hold the office(s) set forth on Schedule 1.1(a) hereto and, as such, shall perform the executive-level services (collectively, "Services") described on Schedule 1.1(b) hereto. Employee shall report directly to the Chief Executive Officer of the Company, currently Mr. R.E. Turner. Employee shall devote substantially all of Employee's productive business time, energy and skill (except on vacation days and holidays) to performing his obligations hereunder and shall perform his obligations hereunder diligently, faithfully and to the best of Employee's abilities. Notwithstanding the foregoing provisions, Employee shall be entitled to serve on the board of directors of any civic, 2 charitable or professional organization, provided that such service does not materially interfere or conflict with Employee's provision of the Services or his fulfillment of any of his other obligations under this Agreement. 1.2 Place of Performance. During the term of his continued employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia at the principal executive offices of the Company, except for reasonably required travel on business. 1.3 Compliance with Policies. Subject to the terms of this Agreement, during the Term, Employee shall comply in all material respects with all policies and procedures applicable to senior executives of the Company generally and to Employee specifically, including, without limitation, the Company's Code of Ethics and Business Conduct. Section 2. Term. The Term shall commence on the date of this Agreement and continue until the earlier to occur of the following: (a) the date that is four (4) years after the date of this Agreement; or (b) in the event Employee's employment is terminated pursuant to Section 6 with an effective date that is prior to the date set forth in (a), then the effective date of such termination. References in this Agreement to the "Four-Year Term" shall refer to the period of time from the date of this Agreement to the date that is four (4) years after the date of this Agreement. Section 3. Cash Compensation; Expenses. 3.1 Base Salary. Employee shall be paid a base salary (the "Base Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary (and all other payments to be made to Employee pursuant to this Section 3) shall be (a) payable on the schedule that the Company may implement from time to time for such payments, and (b) subject to any withholdings and deductions required by applicable law. 3.2 Bonus. During the Term, Employee shall be paid an annual bonus (the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The Annual Bonus shall be earned, paid, administered and governed by the terms and conditions of the Turner Incentive Plan (the "TIP") and any plan that is a successor thereto, provided, however, that the bonus amounts set forth on Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP is terminated by the Company, Employee will continue to remain eligible to receive the Annual Bonus on terms and conditions substantially similar to those of the TIP during the last year that Employee's Annual Bonus was administered and governed by the TIP. 2 3 3.3 Long-Term Incentive Plan. During the Term, Employee shall be entitled to participate in the Long-Term Incentive Plan (together with any, successor plan, "LTIP"). All awards under the LTIP shall be made in accordance with and subject to the terms of all relevant LTIP documentation and shall be based upon the LTIP cycle in effect at the time of the award. The LTIP shall continue in effect during the Term. 3.4 Expense Reimbursement. The Company shall pay or reimburse Employee for all reasonable business expenses incurred or paid by Employee in the course of performing his duties hereunder (it being agreed by the parties hereto that business expenses incurred by Employee shall be deemed to be reasonable if such expenses would have been reimbursed under current practices or the expense reimbursement policy of the Company that is applicable to Employee on the date hereof). As a condition to such payment or reimbursement, however, Employee shall maintain and provide to the Company, upon the Company's request, reasonable documentation and receipts for such expenses. Section 4. Stock-Based Compensation; Special Bonus. 4.1 Stock Option Plan. During the Term, Employee shall be entitled to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan and any successor stock-based employee incentive plans (collectively, the "Stock Option Plan"). Contemporaneously with the execution of this Agreement (or as soon thereafter as reasonably practicable), Employee will be granted the shares of the Company's Class B Common Stock (the "Grant Shares") and the options to purchase shares of the Company's Class B Common Stock (the "Option Shares") under the Stock Option Plan in the number of shares described on Schedule 3.2 hereof. Contemporaneously with the execution of this Agreement, the Company and the Employee shall enter into a Stock Option Agreement in the form of Exhibit A hereto with respect to the Option Shares (the "Option Agreement"). For purposes of Employee's future participation for possible additional grants of stock options or grants under the Stock Option Plan, he will be reviewed and considered for a grant at the same time as, and on a basis and subject to terms that are consistent with, the basis and terms that govern grants to other senior executive officers of the Company, taking into account Employee's position and responsibilities. 4.2 Special Bonus. In addition to any payments made by the Company to Employee hereunder or otherwise, contemporaneously with the transfer of the Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to Employee the Special Bonus described on Schedule 3.2, less any withholding and deductions required under applicable law. 3 4 Section 5. Additional Employee Benefits. 5.1 Benefit Plans. During the Term, Employee shall be entitled to participate in all other employee benefit plans and executive compensation arrangements listed on Schedule 5.1, together with any additional plans or arrangements available to employees generally or to executives or senior executives of the Company as a group, subject in each case to terms and conditions set forth in the plan or program documentation (collectively, the "Benefit Plans"). During the Term, the Company agrees not to modify or amend any material terms of the Benefit Plans or LTIP in any respect that would cause the benefit that Employee would otherwise receive thereunder to be materially reduced unless the Company makes up for such reduction by providing Employee with supplemental benefits (or, in the Company's discretion, cash) with a value that is substantially equivalent to the reduction. 5.2 Vacation. Employee shall be entitled to at least four (4) paid weeks of vacation per year during the Term, to be accrued and taken in accordance with a policy that is no less favorable for Employee than the Company's normal vacation policy applicable to senior executive employees. 5.3 Automobile Allowance; Travel Benefits. The Company shall pay Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during the Term as an automobile allowance. To the extent such benefits are normally extended to other executive officers of the Company, during the Term, Employee shall be entitled to first class air travel for all employment-related air travel, subject to availability of first class seating on a particular flight. 5.4 Memberships. During the Term, the Company shall continue to reimburse Employee for all costs and expenses associated with the maintenance of Employee's current memberships in those business and social clubs and associations for which he is as of the date of this Agreement being reimbursed by the Company. In addition, the Company shall reimburse Employee for all costs and expenses associated with Employee's obtaining and maintaining membership in one additional club or association. 5.5 Financial Counseling. During the Term, the Company shall reimburse Employee for up to $5,000 per year for costs and expenses incurred by Employee in connection with financial and tax counseling and tax return preparation. 5.6 Company-Paid Life Insurance. In combination with life insurance currently provided at the Company's expense, during the Term, Employee shall be provided with life insurance coverage equal to 2.5 times his then current Base Salary. 4 5 5.7 Long-Term Disability Salary Replacement. During the Term, regardless of the limitations on the maximum salary level covered in the current Long-Term Disability Plan or any future plan (collectively, the "Disability Plan"), Employee shall, subject to the other provisions of the Disability Plan, be entitled to purchase insurance under the Disability Plan providing disability-compensation of up to two-thirds of his then current Base Salary for no more than the maximum annual cost (adjusted on a pro rata basis to reflect the percentage increase in coverage over the standard coverage) as currently in effect under the Disability Plan. In the event that the Disability Plan does not permit the purchase of coverage of up to two-thirds of Employee's then current Base Salary or coverage is otherwise not reasonably available, the Company shall purchase or otherwise provide Employee with supplemental coverage to the extent of any shortfall (up to a maximum additional coverage to be provided by the Company of $200,000) in such coverage that may be purchased by Employee under the Disability Plan. Disability payments will commence three (3) months after Employee becomes disabled and shall continue until Employee reaches 65 years of age (whether or not Employee has retired previously) in accordance with the terms of the current Disability Plan. The disability triggering Employee's rights under this Section 5.7 must occur prior to the date of any Notice of Termination hereunder. Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled to deduct without duplication from the aggregate of compensation related or similar payments otherwise payable to Employee pursuant to this Agreement an amount equal to all disability payments received by Employee pursuant to any disability insurance, and worker's compensation and social security policies maintained by the Company. 5.8 Post Retirement Medical Benefits. Each year commencing on the date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b) Employee retires from the Company by giving notice to the Company that the Employee intends to retire and does not intend to seek other full-time employment, whichever occurs first, the Company shall reimburse Employee an amount (the "Annual Premium Amount") of up to an aggregate of Three Thousand Dollars ($3,000.00) (an amount which shall be increased each year in the manner as set forth below) for insurance premiums with respect to medical insurance covering Employee, his spouse and dependents, if any. Immediately prior to the Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the Annual Premium Amount by a fraction (expressed a percentage), the numerator of which is the most recently published "CPI" (as hereinafter defined) as of the Retirement Date and the denominator of which shall be the most recently published CPI as of the date of this Agreement. In addition, at the beginning of each calendar year thereafter, the Annual Premium Amount shall be adjusted by multiplying the then current Annual Premium Amount by a fraction (expressed as a percentage), the numerator of which shall be the most recently published CPI as of the end of the immediately preceding year and the denominator of 5 6 which shall be the numerator used in the calculation relating to the previous calendar year. For the purposes of this Agreement, "CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics, United States Department of Labor. Notwithstanding anything to the contrary in this Agreement, the benefits covered by this Section 5.8 shall not be available to Employee if Employee is terminated by the Company for "Good Cause." 5.9 Indemnification. The Company shall indemnify and hold harmless Employee if Employee is made a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, including any action or suit by or in the right of the Company (for purposes of this Section 5.9, collectively, a "Proceeding") because he is or was an officer, employee, or agent of the Company, against any judgment, settlement, penalty, fine, or reasonable expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred with respect to the Proceeding (for purposes of this Section 5.9, a "Liability"), if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Company, and, in the case of any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The Company shall indemnify Employee to the maximum extent permitted by Georgia law. Section 6. Termination. 6.1 Termination by the Company. Employee's employment hereunder may be terminated by the Company under the circumstances set forth in (a), (b) and (c) below. (a) Death or Total Disability. The Company may terminate Employee's employment hereunder upon the death of Employee or Employee's total disability (total disability meaning the inability of Employee to perform substantially all of his current duties as required hereunder for a continuous period of 183 days because of a mental or physical condition, illness or injury). (b) Good Cause. The Company may terminate Employee's employment hereunder for "Good Cause." For the purposes of this Agreement, the Company shall have "Good Cause" for termination of Employee's employment only (i) if Employee is convicted of or pleads guilty to any felony (except if committed upon advice from counsel to the Company), or (ii) if Employee has engaged in conduct or activities involving moral turpitude materially damaging to the business or reputation of the Company or any Affiliate of the Company, or (iii) if Employee habitually engages in the immoderate use of alcoholic beverages or engages in the illegal use of a controlled substance; or (iv) if Employee 6 7 violates any law, rule, regulation or order of any governmental authority, thereby exposing the Company or any Affiliate of the Company (as defined in Section 9.1(a)) to potential material civil or criminal penalties unless the Employee has done so upon advice from counsel to the Company; or (v) in the event of Employee's default, gross misfeasance, fraud, embezzlement in the performance of his obligations hereunder or if Employee breaches or fails to observe the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after notice thereof from the Company or if any representation or warranty of Employee in this Agreement shall be incorrect in any material respect, or (vi) if Employee persistently and willfully fails or refuses to obey any proper written direction of the Board of Directors or Chief Executive Officer of the Company, or (vii) if Employee knowingly, and with intent, misappropriates for his own purpose and benefit, any property of the Company or any Affiliate of the Company or unlawfully appropriates any corporate opportunity of the Company or any Affiliate of the Company. (c) Discretionary Termination. The Company shall have the right at any point during the Term to terminate the employment of Employee hereunder for any reason or for no reason; provided, however, that the Company's termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall not, for any purpose, also be construed as a termination pursuant to this Section 6.1(c). If the Company commits a breach of any of its material obligations under this Agreement and fails to cure the breach within ten (10) days of being provided written notice of the breach by Employee, then if Employee so chooses (and indicates such choice in such ten-day written notice), the Company shall be deemed to have exercised its right to terminate Employee's employment pursuant to this Section 6.1(c). 6.2 Change in Control Termination by Employee. Employee may terminate his employment for any reason within ninety (90) days after the occurrence of a "Change of Control" of the Company. For all purposes under this Agreement, a "Change of Control" of the Company shall be deemed to have occurred if any of the following events have occurred (a) both of the following events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer of the Company and its consolidated operations; and (ii) "Continuing Common Stock Directors" (as defined below) no longer constitute (except by reason of a temporary vacancy lasting no longer than six months among the Common Stock Directors) a majority of the Company's Board of Directors; or (b) the Company shall sell, transfer or otherwise dispose of all or substantially all of the assets of the Company or the assets, if any, identified on Schedule 6.2 hereof; or (c) the shareholders and the Board of Directors shall have approved any plan or proposal for liquidation or dissolution of the Company; or (d) R.E. Turner dies. For purposes of this Section 6.2, "Continuing Common Stock Directors" shall include only (i) all persons who are initially elected (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) to the 7 8 Company's Board of Directors as Common Stock Directors (as defined in Article XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns in excess of 50% of the voting power of all classes of the outstanding Common Stock of the Company; and (ii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Company's Board of Directors) by at least a majority of the Common Stock Directors described in (i) then serving on the Company's Board of Directors; and (iii) all persons who are initially nominated for election (if elected at a shareholders meeting) or appointed (if filling a vacancy on the Board) by at least a majority of the Common Stock Directors and persons then serving on the Company's Board of Directors who would constitute Continuing Common Stock Directors under either (i) or (ii). A person shall no longer be a Continuing Common Stock Director after his or her service on the Company's Board of Directors is terminated unless reelected or reappointed in the manner described in (i) - (iii) above. Until Article XII of the Company's By-laws is amended or eliminated in such a way as to eliminate the two classes of the Company's directors, of which Common Stock Directors constitute one, then all Continuing Common Stock Directors must be Common Stock Directors. For purposes of this Section 6.2, reference to the Company or the Company's Board of Directors includes the current corporation on the date hereof and any corporation which is the legal successor to the current corporation by virtue of common stock merger or share exchange, provided that such successor corporation is not the subsidiary of, or 50% or more of its common stock is not beneficially owned by, any person, corporation or legal entity other than R.E. Turner. 6.3 Termination by Employee for "Good Reason." Employee may terminate his employment hereunder for "Good Reason" (assuming he has not given the Company notice of his intention to terminate pursuant to Section 6.2) within ninety (90) days after the occurrence of any of the following events prior to the end of the Term: (i) Employee is not reelected to or is removed (other than for cause) from any of the offices set forth on Schedule 1.1(a); or (ii) Employee is not reelected to or is removed (other than for cause) from the Board of Directors of the Company; or (iii) action is taken by the Company or the Board of Directors of the Company that has the effect of divesting Employee, or materially interfering with the exercise by Employee, of authority to perform the Services; or (iv) Employee or the Company's executive offices are relocated more than thirty (30) miles from the Company's current executive offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails to obtain the written assumption of this Agreement by any successor of the Company or any assignee of all or substantially all of its assets at or prior to such succession or assignment; or (vi) the Company breaches or fails to observe any of the terms of this Agreement in any material respect and fails to cure such breach or failure within ten (10) days after the Company has received written notice thereof from Employee, or any representation or warranty of the Company in this Agreement shall be incorrect in 8 9 any material respect. Notwithstanding anything to the contrary in this Agreement, Employee shall not be entitled to terminate for Good Reason if the Company at such time is entitled to (and has not otherwise waived its right or indicated its election not to) terminate Employee pursuant to Section 6.1(a) or 6.1(b) unless one hundred twenty (120) days has elapsed since the first date the Company could have terminated Employee pursuant to Section 6.1(a) or 6.1(b). 6.4 Other Termination by Employee. If Employee's responsibilities no longer include reporting directly to R. E. Turner, Employee may elect to terminate his employment. 6.5 Termination Date and Notice of Termination. (a) Any termination of Employee's employment by the Company or by Employee (other than termination upon the death of Employee) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. (b) "Termination Date" shall mean (i) if Employee's employment is terminated by his death, the date of his death, (ii) if Employee's employment is terminated pursuant to Section 6.1(a) hereof as a result of Employee's total disability, thirty (30) days after Notice of Termination is given (provided that, with respect to a termination pursuant to Section 6.1(a) as a result of Employee's total disability, Employee shall not have returned to the performance of duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Section 6.1(b) hereof, the date on which such Notice of Termination is given, (iv) if Employee's employment is terminated by Employee for "Good Reason" or by the Company pursuant to Section 6.1(c), thirty (30) days after Notice of Termination is given by Employee, and (v) if Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given. Section 7. Compensation Upon Termination or During Disability. 7.1 Incapacity. During any period in which Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental injury or illness, Employee shall continue to receive his then current full Base Salary, including the minimum increases thereto contemplated in Section 3.1, for such period until his employment is terminated pursuant to Section 6.1(a). 9 10 7.2 Termination by the Company Due to Death or Total Disability. If Employee's employment is terminated as a result of his death or his total disability under Section 6.1(a), the Company shall, in the case of Employee's death, pay to Employee's wife, or such different person as Employee designates in writing, and, in the case of Employee's total disability, pay to Employee (a) an amount equal to his then current full Base Salary, including the minimum increases thereto set forth on Schedule 3.2, through the Termination Date and during the remainder of the Four-Year Term, (b) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash equal to (i) the amount of cash that would have been awarded to Employee if Employee's Termination Date had coincided with the end of the then current LTIP cycle less (ii) a prorated amount attributable to the unexpired portion of the then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to the fiscal year that includes the Termination Date, which Adjusted Annual Bonus shall consist of an amount equal to the Annual Bonus that would otherwise be due and payable hereunder with respect to such fiscal year multiplied by a fraction, the numerator of which is the total number of days during the fiscal year that Employee was employed hereunder and the denominator of which is 365. In addition to the above payments, if Employee's employment is terminated as a result of his total disability pursuant to Section 6.1(a), the Company shall provide Employee during the remainder of the Four-Year Term with benefits substantially similar to the benefits Employee would be entitled to receive under the Benefit Plans had Employee not been terminated (or, in lieu of providing Employee such benefits, the Company may provide Employee with cash equal to the value of such benefits). Notwithstanding any provision contained herein to the contrary, the Company shall have the right to offset any amount to be paid to or benefit to be provided to Employee by the Company pursuant to clause (a) of this Section 7.2 during any particular month against amounts that will be paid to Employee during such month under the Company's Disability Plan. 7.3 Termination by Company for Good Cause. If the Employee's employment is terminated for Good Cause pursuant to Section 6.1(b), the Company shall pay Employee his then current full Base Salary through the Termination Date and such other benefits (including stock grants, stock options, LTIP, and Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the Termination Date (calculated as provided in Section 7.2). 7.4 Termination by Employee After a Change in Control. If Employee terminates his employment pursuant to Section 6.2 following a Change in Control or pursuant to Section 6.4, the Company shall pay Employee all earned and vested rights as of the Termination Date, including, without limitation, his then current Base Salary through the Termination Date, an Adjusted Annual Bonus (calculated as provided in Section 7.2), an Adjusted LTIP Award 10 11 (calculated as provided in Section 7.2) and all vested stock grants or stock options. 7.5 Termination by Employee with Good Reason or by the Company Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant to Section 6.1(c), the following provisions shall govern: (i) Base Salary Equivalent. The Company shall pay Employee an amount equal to Employee's Base Salary as shown on Schedule 3.2 for the respective years, after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. To any extent that the period in the preceding clause (B) extends past January 1, 1998, the annual amount payable pursuant to this Section 7.5(i) shall be equal to the base salary for 1997 shown on Schedule 3.2. Except as may be elected by either party pursuant to Section 9.9, payments pursuant to this Section 7.5(i) shall be at such times and in accordance with such procedures as apply to payments governed by Section 3. (ii) Annual Bonus Equivalent. The Company shall pay Employee an amount equal to Employee's bonus as shown on Schedule 3.2 for the respective years after the Termination Date for a period equal to the greater of (A) the number of months (and partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, with such Annual Bonus equivalents to be prorated to reflect any partial year falling within the period specified in (A) or (B), as the case may be. To any extent that the period in the preceding clause (B) extends past January 1, 1998, the annual amount payable pursuant to this Section 7.5(ii) shall be equal to the bonus amount for 1997 shown on Schedule 3.2. (iii) Adjusted LTIP Award. The Company shall pay Employee an Adjusted LTIP Award (calculated as provided in Section 7.2.) if the Termination Date occurs prior to the end of any LTIP cycle during which Employee is participating in the LTIP. (iv) Acceleration of Stock Option Vesting. The Company shall cause the vesting of any Company stock options held by Employee to be accelerated to the Termination Date and provide that Employee shall be entitled to give notice of exercise of all such options for thirty (30) days after the Termination Date. 11 12 (v) Vested Plan Benefits. The Company shall pay or make available to Employee all vested benefits accrued or available under any Benefit Plan in accordance with and subject to the terms of such Benefit Plans. (vi) Miscellaneous Health, Death and Disability Benefits. The Company shall provide Employee with life insurance and other death benefits, health and medical benefits and long term disability benefits substantially similar to those benefits provided to Employee prior to the Termination Date under the Benefit Plans on Schedule 7.5(vi) after the Termination Date for a period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date. (vii) Supplemental Compensation Benefits. The Company shall provide supplemental compensation benefits (current and deferred) to Employee substantially similar to those provided to Employee under the Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits shall be determined as if Employee had continued after the Termination Date to receive the same level of total compensation as in effect immediately before the Termination Date) until the end of the period equal to the greater of (A) the number of months (including partial months) otherwise remaining in the Four-Year Term as of the Termination Date or (B) thirty-six (36) months from the Termination Date, and such supplemental benefits shall be provided to him at the same time and in the same manner as a benefit that would be payable to him under each such Benefit Plan had Employee actually continued to work until the end of such period. (viii) Office Space. The Company shall furnish Employee with office space, secretarial assistance and such other facilities and services as are provided to senior executives of the Company for a period of twelve (12) months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with the items set forth in this clause (viii) in the event that Employee begins other full time employment during such twelve-month period. (ix) Placement Services. The Company shall provide Employee with the assistance of a nationally recognized executive placement firm for a period of twelve months following the Termination Date; provided, however, the Company shall not be required to continue to provide Employee with such assistance in the event that Employee begins other full time employment during such period. 12 13 7.6 Discontinuation of Benefits. Notwithstanding anything to the contrary in this Agreement, after the Termination Date, the Company shall not be required to continue to provide Employee with any benefits pursuant to Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new employment and the new employer provides Employee with equal or better coverage at no or comparable cost to Employee. Nothing in this Agreement is intended to permit Employee to receive, after the Termination Date, a greater package of benefits than he would have been entitled to receive during the same period from the Company had his employment not terminated. 7.7 Conditional Receipt of Benefits. Employee acknowledges and agrees that his right to any compensation or benefits as provided in this Agreement is conditioned on his compliance with all of his obligations in Section 9. Accordingly, Employee agrees that if he fails to comply with any covenant of his contained in Section 9 (regardless of whether such non-compliance occurs during or after the Term), he will not be entitled to any further payment by the Company of compensation or benefits (including those that have vested as of the date of such non-compliance). 7.8 No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise. Except as otherwise expressly set forth in this Section 7, no amounts due to Employee by the Company under this Section 7 shall be reduced or offset by any compensation whatsoever received by Employee from any other employment of Employee. Section 8. Representations of the Parties. The Company represents and warrants to Employee that (a) this Agreement and the Option Agreement have been duly executed and delivered by the Company, (b) the execution, delivery and performance of this Agreement and the Option Agreement by the Company has been duly authorized by all necessary corporate action on the part of the Company including all applicable committees of the Board of Directors or otherwise, (c) this Agreement and the Option Agreement constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, (d) the execution, delivery and performance of this Agreement and the Option Agreement by the Company do not and will not conflict with, violate, or constitute a breach of or default under, (i) the Articles of Incorporation or By-laws of the Company or any of its subsidiaries, (ii) any provision of law or regulations applicable to the Company or any of its subsidiaries, (iii) any provision of any indenture, agreement or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or affected, with respect to which any such conflict, violation, breach or default would render this Agreement unenforceable or would have a material adverse effect on the financial condition of 13 14 the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option Plan, (e) the Option Shares are and at all times during the period of the Option Agreement shall be available under the Plan and there is and will be no violation of Section 5(a) of the Plan with respect to the Option Shares, and (f) the Company has not received any legal advice contrary to the Company's representations and warranties set forth in this Section 8. Employee represents and warrants to the Company that (A) his execution, delivery and performance of this Agreement do not and will not conflict with, violate, or constitute a breach of or default under any provision of law or regulation applicable to him or any provision of any agreement, contract or other instrument to which he is a party or otherwise bound, (B) this Agreement constitutes the legal, valid and binding obligation of Employee, enforceable against Employee in accordance with its terms, and (C) he has not received any legal advice contrary to his representations and warranties set forth in this Section 8. Section 9. Certain Covenants. 9.1 Definitions. For the purposes of this Agreement, the following definitions shall apply: (a) "Affiliate of the Company" shall mean any corporation, partnership or other entity or enterprise which, directly or indirectly, is controlled by the Company and, if the Company becomes wholly-owned by any other corporation, partnership or other entity or enterprise ("Parent"), then "Affiliate of the Company" shall also include Parent and any corporation, partnership or other entity or enterprise which, directly or indirectly, controls, is controlled by, or is under common control with the Company or Parent. For purposes of the preceding sentence, the word "control" (including the terms "controlling", "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity or enterprise, whether through the ownership of voting securities or partnership interests, by contract or otherwise. (b) "Business" shall mean, to the extent engaged in by Turner during the Employment Term, and together with any other business engaged in by Turner during the Employment Term, any one or more of the following businesses, provided that such business is a material part of Turner's business at the date of Termination: ownership, creation, production and/or distribution of audio-visual, audio or visual programming, whether fixed on film, videotape or otherwise ("Programming) by any and all means, whether now known or hereafter created, including, without limitation, satellite transmission (of any kind), over-the-air broadcast, VHF or UHF television, microwave, wire, video cassette, radio, computer, telephone or any combination of the foregoing for ultimate viewing by the public (in public or private, with or without charges); ownership and operation of a television station; ownership, operation and distribution of cable television 14 15 entertainment program services; ownership, operation and distribution of cable television news services; syndication and licensing of films or television Programming; production and/or syndication of theatrical motion pictures; ownership of a professional baseball club; ownership of an interest in a professional basketball club; ownership of an interest in a multimedia sports network; ownership or operation of a sports or entertainment stadium or arena, the sale or marketing of Programming to distributors of Programming, such as cable television system operators, the sale of advertising time in and adjacent to Programming; the merchandising and licensing of consumer products derived from Programming; and the book publishing business. (c) "Competitive Position" shall mean: (i) Employee's direct or indirect equity ownership (excluding equity ownership of less than five percent (5%)) or control of any portion of any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business or (ii) any employment, consulting, partnership, joint venture, advisory, directorship, agency, promotional or independent contractor arrangement between Employee and any entity or enterprise (other than the Company or any Affiliate of the Company) engaged, wholly or partly, in any Business whereby Employee is required to or does perform services similar to the "Services" (as defined in Section 1.1) on behalf of or for the benefit of such an entity or enterprise. (d) "Confidential Information" shall mean valuable, non-public, competitively sensitive data and information relating to Turner's business, other than Trade Secrets (as defined in Section 9.1(j). (e) "Employment Term" shall mean the entire duration of Employee's employment with the Company, including Employee's employment prior to and during the Term through the Termination Date. (f) "Employment Territory" shall mean the entire continental United States. Given Employee's high level of executive responsibility with respect to Turner's business and the fact that Turner's business extends throughout the world, Employee acknowledges that Employee will be expected to perform the Services throughout the entire continental United States and beyond. (g) "Parties" shall mean collectively the Company and Employee. (h) "Trade Secrets" shall mean information or data of or about Turner, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential 15 16 customers, clients, distributees, or licenses, that: (i) derive economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from their disclosure or use; and (ii) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy. To the extent that the foregoing definition is inconsistent with a definition of "trade secret" mandated under applicable law, the latter definition shall govern for purposes of interpreting Employee's obligations under this Agreement. (i) "Turner" shall mean, collectively, the Company and all Affiliates of the Company. (j) "Work Product" shall mean work product, property, data, documentation or information or materials prepared, conceived, discovered, developed or created by Employee in connection with performing the Services or any other of his employment responsibilities during the Employment Term. 9.2 Limitation on Competition. Employee agrees that during the Employment Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position) except with the prior written permission of the Company. Employee agrees that Employee will not, anywhere in the Employment Territory, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position (other than action to reject an offer of a Competitive Position and except with the prior written permission of the Company) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his employment pursuant to Section 6.2 or Section 6.3; provided, however, that Employee may accept a Competitive Position or other position in the print media without violating this Section 9.2. There shall be no limitation on competition if either (i) Employee terminates his employment pursuant to Section 6.4 or (ii) notwithstanding any other provision of this Agreement, the entity controlling the Company after a Change of Control is not a Class C stockholder of the Company as of the date of this Agreement or an entity 100% owned by such a Class C stockholder. 9.3 Limitation on Soliciting Personnel. Employee agrees that, except to the extent that Employee is required to do so in connection with his employment responsibilities on behalf of the Company or except with the Company's prior, written permission, during the Term, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any employee, consultant, contractor or other personnel of Turner to terminate, alter or lessen that 16 17 party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner. Employee agrees that, unless he has received the Company's prior written permission to do so, Employee will not, either directly or indirectly, alone or in conjunction with any other party, solicit or attempt to solicit any "key" (as that term is defined in the next sentence) employee, consultant, contractor or other personnel of Turner residing at the time of the solicitation in the Employment Territory to terminate, alter or lessen that party's affiliation with Turner or to violate the terms of any agreement or understanding between such employee, consultant, contractor or other person and Turner for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key" employees, consultants, contractors or other personnel are those with knowledge of or access to Trade Secrets and Confidential Information. 9.4 Trade Secrets and Confidential Information. (a) Rights to Work Product. Except as expressly provided in this Agreement, the Company alone shall be entitled to all benefits, profits and results arising from or incidental to Employee's performance of the Services. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section 101 et seq., as amended) and owned exclusively by the Company. Employee hereby unconditionally and irrevocably transfers and assigns to the Company all intellectual property or other rights, title and interest Employee may currently have (or in the future may have) by operation of law or otherwise in or to any Work Product. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate to vest complete title and ownership of any Work Product, and all associated rights, exclusively in the Company. (b) Non-disclosure Covenant. Through exercise of his rights and performance of his obligations under this Agreement Employee will be exposed to Trade Secrets and Confidential Information. Employee acknowledges and agrees that any unauthorized disclosure or use of any of the Trade Secrets or Confidential Information would be wrongful and would likely result in immediate and irreparable injury to Turner. Except as required to perform his obligations under this Agreement or except with Company's prior written permission, Employee shall not, without the express prior written consent of the Company, redistribute, market, publish, disclose or divulge to any other person or entity, or use or modify for use, directly or indirectly in any way for any person or entity: (i) any Trade Secrets at any time (during or after the Term) during which such information or data shall continue to constitute a "trade secret" under applicable 17 18 law; and (ii) any Confidential Information during the Term and until the later of (A) for a period of twelve (12) months after the Termination Date if Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b) or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4; or (B) the last day following the Termination Date on which the Employee is receiving severance benefits under Section 7.5. Employee agrees to cooperate with any reasonable confidentiality requirements of the Company. Employee shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. 9.5 Acknowledgment. The Parties acknowledge and agree that the covenants of Employee in this Section 9 (collectively, the "Protective Covenants") are reasonable as to time, scope and territory given Turner's need to protect its substantial investment in its Confidential Information, Trade Secrets and Customer relationships, and particularly given (a) the generous compensation and benefits that are to be provided Employee both before and after the Term, (b) Turner's investment of time, effort and capital in enhancing Employee's business skills and opportunities, (c) the complexity and competitive nature of the Company, and (d) that Employee has sufficient skills to find alternative, commensurate employment or consulting work in Employee's field of expertise that would not entail a violation of the Protective Covenants. The Parties further acknowledge and agree that if the nature of Employee's responsibilities for or on behalf of the Company and the geographical areas in which Employee must fulfill them materially change, the Parties will execute appropriate amendments to the scope of the Protective Covenants. The Parties also acknowledge that the Company shall have the discretion at any point to waive, in writing, Employee's full or partial compliance with any one or more of the Protective Covenants. The Company agrees to make appropriate executive officers available (before and after the Term) to review and discuss the Protective Covenants with Employee. Employee represents and warrants to the Company that during the Employment Term (up to the date of this Agreement) he has not taken any action or failed to take any action that could reasonably be construed as a breach of his covenants in this Section 9 (assuming for purposes of this sentence that the covenants in this Section 9 applied during the duration of the Employment Term). 9.6 Tolling. The running of the applicable time period of any Protective Covenant shall be tolled: (a) during the continuation of any breach by Employee of the Protective Covenant; and (b) during the pendency of any litigation involving a good faith claim by the Company that Employee has breached the Protective Covenant. 9.7 Return of Materials. At any point during the Term at the specific request of the Company, or, in any event, as promptly as practicable after Employee's employment hereunder has been terminated Employee will return to the Company all Work 18 19 Product (including any copies or reproductions thereof and any materials constituting or containing Trade Secrets or Confidential Information of the Company that are in Employee's possession or control. 9.8 Remedies. (a) Notwithstanding anything to the contrary in this Agreement, in the event of a breach by Employee of any provision of this Agreement, the Company shall have the right to set-off against any sums the Company owes Employee the amount any damages incurred or suffered by the Company as a result of the breach. Any such set-off shall not be presumed to be in full satisfaction of or as liquidated damages for or as a release of any claim for damages against Employee that may accrue to the Company as a result of the breach. Notwithstanding Section 10 below, the Parties further acknowledge that any breach or threatened breach of a Protective Covenant by Employee is reasonably likely to result in irreparable injury to the Company, and therefore, in addition to all remedies provided at law or in equity (which remedies shall be cumulative and not mutually exclusive), Employee agrees that the Company shall be entitled to file suit in a court of competent jurisdiction, to seek a temporary restraining order and a permanent injunction to prevent a breach or contemplated breach of the Protective Covenant. The existence of any claim, demand, action or cause of action of Employee against Turner, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of Employee's obligations under this Agreement. (b) The payments and benefits provided to Employee pursuant to this Agreement shall constitute Employee's sole and exclusive remedy against the Company in the event of any claim of Employee arising out of any termination of his employment by the Company. The parties agree that such payments and benefits shall constitute liquidated damages for any liability of the Company as a result of such termination, and that the value of such payments and benefits is a reasonable forecast of damages that the Employee would sustain as a result of a wrongful termination of Employee's employment. Accordingly, Employee hereby releases and discharges the Company and any of its past, current or future directors, officers or employees or other personnel from any and all liabilities, whether known or unknown, whether currently existing or arising in the future, relating to or arising out of the termination of Employee's employment with the Company, except for the Company's stated obligations under this Agreement. 9.9 Cash Out. At the end of the twelve month noncompete period pursuant to Section 9.2, either the Company or the Employee may elect, by notice within thirty (30) days of such date, to pay or receive, as the case may be, the present value of all then remaining cash payments and benefits to be paid or made available to Employee pursuant to this Agreement. The present value shall be calculated by using as a discount factor the yield 19 20 of U.S. Treasury obligations as of the date such noncompete period ends having maturities most closely approximating the last date on which such cash payments or benefits would otherwise have been paid or made available pursuant to this Agreement. The value of all benefits other than cash payments shall be determined by Towers, Perrin or such other expert in employee benefits as may be acceptable to the parties and such value converted to present value in accordance with this Section 9.9. Section 10. Arbitration. Any controversy or claim arising from, out of or relating to this Agreement, or the breach thereof (other than controversies or claims arising from, out of or relating to the provisions in Section 9), shall be determined by final and binding arbitration in Atlanta, Georgia, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, by a panel of one (1) arbitrator appointed by the American Arbitration Association. The decision of the arbitrator may be entered and enforced in any court of competent jurisdiction by either the Company or Employee. The parties indicate their acceptance of the foregoing arbitration requirement by initialing below: /s/ Wayne H. Pace /s/ Scott Sassa --------------------------- --------------------------- For the Employee Company Section 11. Miscellaneous. 11.1 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon Employee and his executor, administrator, heirs, personal representative and assigns, and the Company and its successors and assigns; provided, however, neither party hereto shall be entitled to assign any of its rights, or delegate any of its duties (except, in the case of Employee, customary delegation of executive authority not inconsistent with this Agreement; and except, in the case of the Company, and subject to Employee's right to terminate pursuant to Section 6.2, to any person or entity acquiring all or substantially all of the assets of the Company), hereunder without the prior written consent of the other party. The Parties intend that each Affiliate of the Company shall be the beneficiary of all the Company's rights under this Agreement. 11.2 Governing Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Georgia. 11.3 Certain Fees and Expenses. The Company shall pay, following submission of statements therefor, the reasonable fees and expenses of counsel incurred by Employee in connection with the negotiation and preparation of this Agreement and the arrangements contemplated hereby. In the event of any 20 21 arbitration, litigation or dispute whatsoever arising from a claim brought by Employee to enforce the provisions of Section 7 of this Agreement, if Employee prevails the Company shall pay, or reimburse Employee for, all reasonable legal fees and expenses incurred by Employee in connection with such litigation or dispute. Employee shall be deemed to have prevailed if he substantially obtains the relief sought, either through a judgment or the Company's voluntary action before arbitration (after it is scheduled), trial or judgment. 11.4 Headings. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.5 Notices. Unless otherwise agreed to in writing by the parties hereto, all communications provided for hereunder shall be in writing and shall be deemed to be given when delivered if delivered in person or by telecopy or five (5) business days after being sent by first-class mail, registered or certified, return receipt requested, with proper postage prepaid, and (a) If to Employee, addressed to: Scott M. Sassa Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Walter W. Driver, Jr., Esquire King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 (b) If to the Company, addressed to: Mr. R.E. Turner Chairman and President Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 with a copy to: Steven W. Korn, Esq. Vice President and General Counsel Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30348 21 22 or to such other person or address as shall be furnished in writing by any party to the other prior to the giving of the applicable notice or communication. 11.6 Schedules. All Schedules to this Agreement are attached and are hereby made a part of this Agreement by this reference. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 11.8 Entire Agreement. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreements to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by each of the parties hereto. 11.9 Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, territory, scope or otherwise, the Company and Employee intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. 11.10 Waiver. The waiver by either the Company or Employee to this Agreement of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach of the same provision by the other party or a waiver of a breach of another provision of this Agreement by the other party. No waiver or modification of any provision of this Agreement shall be valid unless in writing and duly executed by the party to be charged with the waiver or modification. 22 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace -------------------------------------------- Name: Wayne H. Pace --------------------------------------- Title: Vice President -------------------------------------- Attest: /s/ Steven W. Korn ---------------------------------------- Name: Steven W. Korn ------------------------------------------ Title: Vice President ----------------------------------------- EMPLOYEE /s/ Scott Sassa ----------------------------------- Scott M. Sassa 23 24 SCOTT M. SASSA EMPLOYMENT CONTRACT SCHEDULE 1.1 (a) Turner Entertainment Group - President CR Acquisition Co. - Director and President The Cartoon Network, Inc. - Director and President The Cartoon Network Limited - Director Castle Rock Entertainment, Inc. - Director and President HB Holding Co. - Director Hanna Barbera Cartoons, Inc. - Vice President Hanna Barbera Entertainment Co., Inc. - Director Hanna Barbera Productions, Inc. - Director NL Acquisition Co. - Director and President Superstation, Inc. - President Turner Broadcasting System, Inc. - Director and Vice President Entertainment Networks Turner Entertainment Co. - Chairman Turner Entertainment Networks International Limited - Director Turner Management Co., UK Limited - Director Turner Management Co., UK Limited - Director Turner Network Television, Inc. - Director and President Turner Network Television Limited - Director Turner Pictures, Inc. - Director and President Turner Publishing, Inc. - Director and President 25 SCOTT M. SASSA EMPLOYMENT CONTRACT SCHEDULE 1.1 (b) Employee shall be responsible for the day to day operations which will include the hiring and firing of employees, control of creative decisions, and profit and loss responsibility for the following areas: Turner Entertainment Networks, which includes TBS, TNT, The Cartoon Network, Turner Classic Movies, TNT Latin America, Cartoon Network Latin America, TNT/Cartoon Network Europe, TNT/Cartoon Network Asia and any additional entertainment based networks. TBS Productions, Turner Pictures, Hanna Barbera Productions, Turner Entertainment Company and Hanna Barbera Entertainment Company. Turner Home Entertainment, which includes Turner Home Video, Turner Licensing and Merchandising, Turner Publishing, Turner New Media and Turner Interactive. Employee shall be a member of the management committee that oversees the company's feature film activities. 26 SCOTT M. SASSA EMPLOYMENT CONTRACT SCHEDULE 3.2 Salary: 1994 - $805,000 1995 - $845,000 1996 - $890,000 1997 - $940,000 Bonus: 1994 - $645,000 1995 - $680,000 1996 - $715,000 1997 - $750,000 Special Bonus: $383,555 Stock Grant: 16,700 shares Class B common stock Stock Options - 500,000 shares Class B common stock at 27-1/8 dollars per share, vesting in four equal installments, 125,000 shares on January 1, 1995 and 125,000 shares on January 1 of each of 1996, 1997 and 1998. 27 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (the "Amendment") is made and entered into as of the 26th day of January, 1994 by and between Scott M. Sassa, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee and the Company are parties to that certain employment agreement of January 1, 1994 (the "Employment Agreement"); WHEREAS, the parties desire to enter into this Amendment to amend the Employment Agreement so as to accurately reflect their original understanding and intentions with respect to a certain aspect of the Employment Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree to amend the Employment Agreement as follows: 1. All of the second sentence of Section 3.2 of the Employment Agreement beginning with the underlined phrase "provided, however," is hereby deleted and ------------------ is replaced with the following: "the provision in the TIP which affords eligible employees the opportunity to earn up to 150% of their Target Award under certain circumstances shall be applicable hereunder. Accordingly, pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual Bonus set forth on Schedule 3.2 of the Employment Agreement." 2. Except as expressly amended hereby, the terms and conditions of the Employment Agreement shall remain in full force and effect. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Wayne H. Pace ---------------------------- Its: Vice President - Finance ---------------------------- ATTEST: /s/ Steven W. Korn ------------------------- NAME: Steven W. Korn ------------------------- TITLE: Vice President ------------------------- EMPLOYEE /s/ Scott M. Sassa -------------------------------- Scott M. Sassa EX-11 8 TBS COMPUTATION PRIMARY EARNINGS 1 Exhibit 11 Page 1 of 2 TURNER BROADCASTING SYSTEM, INC. Computation of Primary Earnings Per Share (in thousands, except per share data)
Year ended December 31, 1993 ----------------- Net loss applicable to common stock.............................. $ (244,248) =========== Net loss applicable to Class A Common Stock...................... $ (63,112) =========== Net loss applicable to Class B Common Stock...................... $ (181,136) =========== Weighted average number of shares outstanding during the period.. 188,550 Add: Common equivalent shares issuable assuming conversion of Class C Convertible Preferred Stock............... 74,382 Shares issuable upon exercise of stock options............... 5,472 Subtract: Shares which would have been purchased with proceeds from exercise of such stock options.............. (3,961) ----------- Weighted average number of common stock, common stock equivalents and converted shares outstanding................. 264,443 ========== Weighted average number of Class A common shares and common stock equivalents............................................ 68,330 ========== Weighted average number of Class B common shares and common stock equivalents.......................................... 196,113 ========== Loss per share and common stock equivalent of Class A and Class B common stock..................................... $ (0.92) ===========
2 Exhibit 11 Page 2 of 2 TURNER BROADCASTING SYSTEM, INC. Computation of Fully-Diluted Earnings Per Share (in thousands, except per share data)
Year ended December 31, 1993 ----------------- Net loss applicable to common stock............................... $ (244,248) Add: Interest expense on zero coupon subordinated convertible notes due 2004............................................. 13,507 Interest expense on zero coupon subordinated convertible notes due 2007............................................. 15,759 Extraordinary loss on early extinguishment of debt, net of tax................................................. 4,456 Subtract: Additional income taxes................................ (11,681) ---------- Adjusted net loss applicable to common stock...................... $ (222,207) =========== Net loss applicable to Class A Common Stock....................... $ (54,500) ========== Net loss applicable to Class B Common Stock....................... $ (167,707) ========== Weighted average number of common stock, common stock equivalents and converted shares outstanding.................. 264,798 (a) Add: Shares issuable assuming conversion of zero coupon convertible notes due 2004................................. 6,358 Shares issuable assuming conversion of zero coupon convertible notes due 2007................................. 7,440 ---------- Weighted average number of common shares, common stock equivalents and convertible shares, assuming full dilution... 278,596 ========== Weighted average number of Class A common shares, common stock equivalents and convertible shares assuming full dilution..... 68,330 ========== Weighted average number of Class B common shares, common stock equivalents and convertible shares assuming full dilution..... 210,266 ========== Loss per share of Class A and Class B common stock assuming full dilution......................................... $ (0.80) ===========
This calculation is submitted in accordance with the rules and regulations of the Securities and Exchange Commission. Under generally accepted accounting principles this presentation would not be made because it is anti-dilutive. (a) The weighted average number of common stock, common stock equivalents and converted shares outstanding is not the same as the balance on the primary earnings per share calculation as the market price at the close of the period was used in place of the average price in order to reflect maximum dilution. EX-13 9 ENTERTAINMENT SEGMENT FINANCIAL DATA 1 ENTERTAINMENT SEGMENT FINANCIAL DATA EXHIBIT 13
(in thousands) 1993 1992(2) 1991(2) ---------- ---------------------------- Total revenue $1,162,282 $1,078,567 $869,018 Total operating profit(1) 143,245 151,838 146,469 Advertising revenue 554,585 498,250 425,476 Subscription revenue 318,804 269,577 234,281
ENTERTAINMENT SEGMENT OPERATIONAL DATA
1993 1992 1991 ------ ------------------------ U.S. Coverage Households (in thousands)(3) TBS SuperStation 61,525 60,032 57,457 TNT 60,876 58,312 55,641 Cartoon Network 8,861 -- -- ------ ------------------------ U.S. Cable Television Household Penetration(3) TBS SuperStation 94% 94% 94% TNT 95 94 93 Cartoon Network 13 -- -- ------ ------------------------ U.S. Television Household Penetration(3) TBS SuperStation 65% 64% 62% TNT 65 63 60 Cartoon Network 9 -- -- ------ ------------------------ U.S. Average Viewing Households (in thousands)(4) TBS SuperStation 815 803 793 TNT 552 560 509 Cartoon Network 56 -- -- ------ ------------------------ U.S. 24-hour Ratings(4) TBS SuperStation 1.3% 1.4% 1.4% TNT 0.9 1.0 0.9 Cartoon Network 0.9 -- -- ------ ------------------------ U.S. Share of Viewing Households 24-hour basis(4) TBS SuperStation 4.2% 4.3% 4.4% TNT 2.9 3.1 3.0 Cartoon Network 2.7 -- -- ------ ------------------------ Household Distribution (in thousands)(5) TNT Latin America 1,462 929 142 Cartoon Network Latin American 997 -- -- TNT & Cartoon Network Europe 16,660 -- --
(1) Operating profit is defined as income before interest expense, interest income, income taxes, extradinary items and the cumulative effect of a change in accounting for income taxes. (2) Certain amounts prior to 1993 have been reclassified to conform to the current year presentation. (3) Measured as of the December rating period in each year indicated. Data for Cartoon Network was not available until January 1993. (4) Represents the average number of viewing households for the respective sevice at any given time based upon an average for each 24-hour period in the 12 rating periods in each year indicated. (5) Information supplied by Turner International, Inc. (Photo) (Photo) (Photo) 17 2 NEWS SEGMENT FINANCIAL DATA
(in thousands) 1993 1992 (2) 1991 (2) -------- ----------------------- Total revenue $599,352 $531,071 $478,302 Total operating profit(1) 212,202 178,404 165,313 Advertising revenue 302,873 274,093 249,888 Subscription revenue 227,115 196,096 170,416 International revenue 92,974 74,416 51,297
NEWS SEGMENT OPERATIONAL DATA
1993 1992 1991 ------ --------------------- U.S. Coverage Households (in thousands)(3) CNN 62,420 61,172 58,877 Headline News 54,219 51,354 48,223 ------ --------------------- U.S. Cable Television Household Penetration(3) CNN 97% 97% 97% Headline News 85 82 80 ------ --------------------- U.S. Television Household Penetration(3) CNN 66% 66% 64% Headline News 58 55 52 ------ --------------------- U.S. Average Viewing Households (in thousands)(4) CNN 369 400 685(5) Headline News 181 172 182 ------ --------------------- U.S. 24-hour Ratings(4) CNN 0.6% 0.7% 1.2%(5) Headline News 0.3 0.3 0.4 ------ --------------------- U.S. Share of Viewing Households 24-hour basis(4) CNN 1.9% 2.1% 3.7%(5) Headline News 1.1 1.1 1.2 ------ --------------------- Household Distribution (in thousands) (6) CNN International 45,100 34,700 15,500
(1) Operating profit is defined as income before interest expense, interest income, income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes. (2) Certain amounts prior to 1993 have been reclassified to conform to the current year presentation. (3) Measured as of the December rating period in each year indicated. (4) Represents the average number of viewing households for the respective service at any given time based upon an average for each 24-hour period in the 12 rating periods in each year indicated. (5) Increase primarily due to Persian Gulf War coverage. (6) Information supplied by Turner International, Inc. An additional 29 million and 28 million homes received CNN International at least 5 hours per day in 1993 and 1992, respectively. CNN International's competitive position is ensured not only by a superior editorial product, but also by the best world wide distribution arrangements possible. In the growing Asian and Pacific Rim markets, Turner has formed an alliance with leading programmers in the area to coordinate satellite distribution strategies, encryption, compression technology, DTH marketing and a variety of regional policy issues. Among the group's common interests are transponder agreements with APSTAR-1, (Photo) (Photo) (Photo) 23 3 SELECTED FINANCIAL DATA Turner Broadcasting System, Inc. The following table summarizes certain consolidated financial data of Turner Broadcasting System, Inc. (the "Company") for the years indicated which, with respect to the latest three years, is qualified in its entirety by the accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements. Also see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in the accompanying 1993 Turner Broadcasting System, Inc. Form 10-K.
in thousands, except per share data and current ratio Year ended December 31, 1993 1992 1991 1990 1989 ---------- ----------------------------------------------------- STATEMENT OF OPERATIONS DATA Revenue $1,921,606 $1,769,892 $1,480,243 $1,393,521 $1,065,051 Operating profit (1) 302,140 289,382 297,121 201,265 266,052 Dividends on minority interest (2) - - - - 16,603 Interest expense, net of interest income 181,571 189,637 196,139 189,741 192,824 Income (loss) before extraordinary items and the cumulative effect of a change in accounting for income taxes 72,445 34,061 42,936 (15,578) 27,632 Extraordinary items (3) (10,693) 43,561 43,000 20,200 (98,279) Cumulative effect of change in accounting for income taxes (4) (306,000) - - - - Net income (loss) (244,248) 77,622 85,936 4,622 (70,647) Earnings (loss) per common share (5) Income (loss) before extraordinary items and the cumulative effect of a change in accounting for income taxes 0.27 0.13 0.06 (0.42) (0.13) Net income (loss) (0.92) 0.30 0.24 (0.28) (0.80) BALANCE SHEET DATA (at end of year) Working capital $ 660,585 $ 475,397 $ 378,680 $ 264,796 $ 221,101 Current ratio 2.60 2.26 2.09 1.76 1.54 Total assets 3,244,862 2,523,573 2,397,227 2,152,617 2,114,763 Long-term debt, less current portion (6) 2,294,557 1,709,051 1,968,937 1,855,619 1,688,548 Redeemable preferred stock (7) - - 4,855 334,160 324,996 Cash dividends (8) 18,407 13,589 5,356 - - Stockholders' equity (deficit) (1,103) 233,101 (37,603) (473,092) (431,649) Total capitalization (9) 2,293,454 1,942,152 1,936,189 1,716,687 1,581,895 ========== ====================================================
(1) Operating profit is defined as income before interest expense, interest income, dividends on minority interest, income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes. (2) In 1989, the Class A Cumulative Exchangeable Preferred Stock of Cable News Network, Inc. ("CNN") was redeemed. (3) The amount in 1993 represents a $16,946,000 loss on early extinguishment of indebtedness, net of the income tax benefit of $6,253,000. The amounts in 1992, 1991 and 1990 represent utilization of operating loss carryforwards. In 1989, the amount represents a $123,191,000 loss on early extinguishment of indebtedness, net of the income tax benefit of $24,912,000. (4) The cumulative effect of adopting Statement of Financial Accounting Standards No. 109 ("FAS 109") was a non-recurring charge to the 1993 Consolidated Statement of Operations of $306,000,000. This charge was primarily related to the 1986 acquisition of the Turner Entertainment Co. Film Library (the "TEC Library") and, to a lesser degree, the Company's 50% interest in Hanna-Barbera Holding Company. In both transactions there were substantial differences between amounts recorded for financial reporting purposes and for income tax purposes. (5) The earnings (loss) per share calculations for 1993, 1992 and 1991 include common stock equivalents. Per share amounts prior to 1990 have been restated to reflect the three-for-one stock split declared July 23, 1990 and paid September 4, 1990. (6) See Note 5 of Notes to Consolidated Financial Statements for information regarding repayment terms of and collateral for outstanding long-term debt. (7) The amounts represent the accreted value of the Class B Cumulative Preferred Stock outstanding at each year end. See Note 9 of Notes to Consolidated Financial Statements. (8) Amounts in 1992 and 1991 include dividends on preferred stock. See Note 9 and Note 10 of Notes to Consolidated Financial Statements for additional information. (9) Total capitalization is defined as stockholders' equity (deficit), long-term debt less current portion, Class B Cumulative Preferred Stock and minority interest. 28 4 CONSOLIDATED STATEMENTS OF OPERATIONS Turner Broadcasting System, Inc.
Year ended December 31, in thousands, except per share data 1993 1992 1991 ----------- ------------------------ Revenue Unaffiliated $1,536,112 $1,398,667 $1,201,771 Affiliated 385,494 371,225 278,472 ---------- ------------------------ 1,921,606 1,769,892 1,480,243 ---------- ------------------------ Cost of operations 1,023,045 984,630 802,915 Selling, general and administrative 537,108 442,270 349,475 Depreciation of property and equipment and amortization of intangible assets 39,273 33,586 30,910 Interest expense, net of interest income 181,571 189,637 196,139 Equity in (income) loss of unconsolidated entities 20,040 4,024 (178) Estimated loss on termination of the Checkout Channel - 16,000 - ---------- ------------------------ 1,801,037 1,670,147 1,379,261 ---------- ------------------------ INCOME BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 120,569 99,745 100,982 Provision for income taxes 48,124 65,684 58,046 ---------- ------------------------ INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 72,445 34,061 42,936 Extraordinary items (10,693) 43,561 43,000 ---------- ------------------------ INCOME BEFORE THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 61,752 77,622 85,936 Cumulative effect of a change in accounting for income taxes (306,000) - - ---------- ------------------------ NET INCOME (LOSS) $ (244,248) $ 77,622 $ 85,936 ========== ======================== Net income (loss) applicable to common stock Net income (loss) $ (244,248) $ 77,622 $ 85,936 Less: Preferred stock dividends and accretion of discount - 1,292 28,522 ---------- ------------------------ Net income (loss) applicable to common stock $ (244,248) $ 76,330 $ 57,414 ========== ======================== Net income (loss) applicable to Class A Common Stock $ (63,112) $ 20,416 $ 16,473 Net income (loss) applicable to Class B Common Stock $ (181,136) $ 55,914 $ 40,941 ========== ======================== Earnings (loss) per common share and common stock equivalent Income before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 0.27 $ 0.13 $ 0.06 Extraordinary items (0.03) 0.17 0.18 Cumulative effect of a change in accounting for income taxes (1.16) - - ---------- ------------------------ Net income (loss) $ (0.92) $ 0.30 $ 0.24 ========== ======================== Weighted average number of common shares outstanding, including conversion of common stock equivalents Class A Common Stock 68,330 68,330 68,330 Class B Common Stock 196,113 187,143 169,827 ========== ========================
See accompanying Notes to Consolidated Financial Statements. 29 5 CONSOLIDATED BALANCE SHEETS Turner Broadcasting System, Inc.
December 31, in thousands, except share data 1993 1992 ----------- ----------- ASSETS Cash and cash equivalents $ 162,858 $ 126,256 Accounts receivable, less allowance of $23,083 and $17,088 Unaffiliated 378,228 314,580 Affiliated 94,011 81,453 Film costs 314,637 243,544 Installment contracts receivable, less allowance of $11,915 and $12,006 56,563 46,552 Prepaid expense and other current assets 68,196 39,798 ---------- ---------- Total current assets 1,074,493 852,183 Film costs, less current portion 1,633,731 1,186,624 Property and equipment, less accumulated depreciation 225,228 212,817 Installment contracts receivable, less discount of $1,123 and $3,123 15,077 28,259 Other assets 296,333 243,690 ---------- ---------- TOTAL ASSETS $3,244,862 $2,523,573 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Accounts payable and accrued expenses $ 168,975 $ 153,749 Deferred income 106,496 47,816 Participants' share and royalties payable 33,922 20,436 Interest payable 32,128 19,807 Film contracts payable 28,096 26,654 Current portion of long-term debt 2,051 76,959 Other current liabilities 42,240 31,365 ---------- ---------- Total current liabilities 413,908 376,786 Long-term debt, less current portion 2,294,557 1,709,051 Deferred income taxes 395,668 - Other long-term liabilities 141,832 204,635 ---------- ---------- TOTAL LIABILITIES 3,245,965 2,290,472 ---------- ---------- Commitments and contingencies Stockholders' equity (deficit) Class C Convertible Preferred Stock, par value $0.125; authorized 12,600,000 shares; issued and outstanding 12,396,976 shares 260,438 260,438 Class A Serial Preferred Stock, par value $0.10; authorized 500,000 shares - - Class D Serial Preferred Stock, par value $0.0625; authorized 100,000,000 shares - - Class A Common Stock, par value $0.0625; authorized 75,000,000 shares; issued and outstanding 68,330,388 shares 4,271 4,271 Class B Common Stock, par value $0.0625; authorized 300,000,000 shares; issued and outstanding 120,887,672 and 119,845,121 shares 7,555 7,490 Capital in excess of par value 731,042 702,791 Accumulated deficit (1,004,409) (741,889) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,103) 233,101 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $3,244,862 $2,523,573 ========== ==========
See accompanying Notes to Consolidated Financial Statements. 30 6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Turner Broadcasting System, Inc.
December 31, in thousands, except share data 1993 1992 1991 -------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount ------------------------------------------------------------------------- CLASS C CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.125 Balance at beginning and end of year 12,396,976 $ 260,438 12,396,976 $ 260,438 12,396,976 $ 260,438 =========== ----------- =========== ----------- =========== ---------- CLASS A COMMON STOCK, PAR VALUE $0.0625 Balance at beginning of year 68,330,388 4,271 68,330,388 4,271 68,328,636 4,328 Exercise of stock options - - - - 1,752 - Other - - - - - (57) ------------------------------------------------------------------------------- Balance at end of year 68,330,388 4,271 68,330,388 4,271 68,330,388 4,271 =========== ----------- =========== ----------- =========== ---------- CLASS B COMMON STOCK, PAR VALUE $0.0625 Balance at beginning of year 119,845,121 7,490 107,865,957 6,742 80,883,697 5,112 Issuance of Class B Common Stock 287,930 18 11,500,000 719 - - Exercise of stock options 754,621 47 479,164 30 437,764 27 Stock dividends - - - - 2,306,478 144 Exchange of shares for Class B Cumulative Preferred Stock - - - - 24,238,018 1,515 Other - - - (1) - (56) ------------------------------------------------------------------------------- Balance at end of year 120,887,672 7,555 119,845,121 7,490 107,865,957 6,742 =========== ----------- =========== ----------- =========== ---------- CAPITAL IN EXCESS OF PAR VALUE Balance at beginning of year 702,791 496,568 120,066 Issuance of Class B Common Stock 7,449 203,925 - Exercise of stock options 7,443 2,298 1,332 Tax benefit from exercise of stock options 13,359 - - Stock dividends - - 32,723 Exchange of shares for Class B Cumulative Preferred Stock - - 342,334 Other - - 113 ----------- ----------- ---------- Balance at end of year 731,042 702,791 496,568 ----------- ----------- ---------- ACCUMULATED DEFICIT Balance at beginning of year (741,889) (805,622) (863,036) Net income (loss) (244,248) 77,622 85,936 Cash dividends (18,407) (12,597) - Accretion of discount and dividends on Class B Cumulative Preferred Stock - (1,292) (28,522) Other 135 - - ----------- ----------- ----------- Balance at end of year (1,004,409) (741,889) (805,622) ----------- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) $ (1,103) $ 233,101 $ (37,603) =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements. 31 7 CONSOLIDATED STATEMENTS OF CASH FLOWS Turner Broadcasting System, Inc.
Year ended December 31, in thousands 1993 1992 1991 ------------- ------------------------- CASH PROVIDED BY OPERATIONS Net income (loss) $ (244,248) $ 77,622 $ 85,936 Adjustments to net income (loss) Equity in (income) loss of unconsolidated entities 20,040 4,024 (178) Cumulative effect of a change in accounting for income taxes 306,000 - - Depreciation of property and equipment and amortization of intangible assets 39,273 33,586 30,910 Interest expense, net of interest income 181,571 189,637 196,139 Pretax loss on early extinguishment of debt 16,946 - - Change in assets and liabilities, net of effects from acquisitions Net increase in accounts receivable (30,914) (49,916) (22,125) Net (increase) decrease in installment contracts receivable 15,246 (968) 13,841 Change in film costs and liabilities, net Purchased program rights 74,398 70,846 46,214 Produced programming (38,375) (13,200) 26,245 Licensed program rights 7,223 (49,755) (122,040) Net increase (decrease) in accounts payable and accrued expenses 2,376 22,288 (9,576) Increase in deferred tax liability 24,440 - - Other, net (9,307) 19,592 16,298 ------------ ------------------------- Cash provided by operations before interest payments 364,669 303,756 261,664 Interest payments, net of interest received (137,664) (150,229) (176,717) Payments of accreted amounts upon redemption of related securities (74,683) - - Debt issue costs (16,322) (6,756) - ------------ ------------------------- Net cash provided by operations 136,000 146,771 84,947 ------------ ------------------------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Acquisitions (592,275) - (116,493) Additions to property and equipment (50,570) (47,231) (35,911) Net proceeds from sale of assets - 45,000 - ------------ ------------------------- Net cash used for investing activities (642,845) (2,231) (152,404) ------------ ------------------------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Borrowings 1,522,372 300,052 261,000 Payments of debt (968,008) (543,942) (167,596) Commercial paper activity, net - (40,850) 12,873 Payments of cash dividends (18,407) (13,589) (5,356) Proceeds from exercise of stock options 7,490 2,328 1,359 Proceeds from issuance of common stock - 204,644 - Redemption of preferred stock - (5,483) - ------------ ------------------------- Net cash provided by (used for) financing activities 543,447 (96,840) 102,280 ------------ ------------------------- Net increase in cash and cash equivalents 36,602 47,700 34,823 Cash and cash equivalents at beginning of period 126,256 78,556 43,733 ------------ ------------------------- Cash and cash equivalents at end of period $ 162,858 $ 126,256 $ 78,556 ============ =========================
See accompanying Notes to Consolidated Financial Statements. 32 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Turner Broadcasting System, Inc. and its subsidiaries (the "Company"). The Company's investments in unconsolidated entities where the ability to exercise significant influence is present are accounted for by the equity method. All significant intercompany accounts and transactions are eliminated in consolidation. Certain amounts in the consolidated financial statements prior to 1993 have been reclassified to conform to the current year presentation. Amortization of film costs and participants' share and royalties expense are recorded in cost of operations in the Consolidated Statements of Operations. CASH EQUIVALENTS All highly liquid investments, consisting primarily of treasury bills and commercial paper with an original maturity of 90 days or less, are reported as cash equivalents. Cash equivalents are reported at their cost basis, which approximates market value, and totaled $131,006,000 and $94,433,000 at December 31, 1993 and 1992, respectively. FILM COSTS Film costs include purchased program rights, produced programming and licensed program rights. Film costs are stated at the lower of cost less accumulated amortization or estimated net realizable value. Purchased program rights, representing purchased costs allocated to films that have been exhibited at least once in both primary (defined as the first markets in which such films are to be exploited) and secondary (defined as all other) markets, are amortized to expense using the greater of the ratio that the current period's gross revenues bear to the total estimated gross revenues to be derived from all sources (the "individual film forecast computation method") or straight-line over 20 years. See Note 2 of Notes to Consolidated Financial Statements. Royalties and obligations to profit participants in the films are accrued using a method which approximates the individual film forecast computation method. Purchased program rights expected to be amortized within one year are classified as current assets. Motion picture, episodic television and animated produced programming costs consist of direct production costs, profit participations and residuals, production overhead, capitalized interest, and print and exploitation costs (such as advertising), net of accumulated amortization. Distribution fees are charged to expense when the corresponding revenues are recognized. These film costs are amortized using the individual film forecast computation method. Such estimates are revised periodically and estimated losses, if any, are provided for in full at the time determined. Motion picture, episodic television and animated produced programming costs classified as current assets include, net of amortization, the cost of completed theatrical films, television programs or animated produced programming that have been allocated to domestic and international primary markets. All other motion picture, episodic television and animated produced programming film costs are classified as noncurrent. Rights fees and other costs relating to sports events are generally expensed when the events are telecast. Substantially all other produced programming costs are charged to cost of operations when each production is aired or syndicated. Other produced programming costs expected to be expensed within one year are classified as current assets. Licensed program rights represent amounts paid or payable to program suppliers for the limited right to broadcast the suppliers' programming and distribution rights to entertainment product. New licensed film contracts are recorded when available for use at cost less an amount representing imputed interest; imputed interest is amortized to expense over the payment periods of the related obligations using the interest method (rates ranging from 9.75% to 10.75%). Exhibition rights under the licenses are generally limited to a contract period or a specific number of showings. Accordingly, licensed program rights are amortized to expense monthly at the greater of the straight-line rate or a rate based on actual usage. Rights expected to be amortized within one year are classified as current assets. Distribution rights are generally amortized over the term of the agreement. 33 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation. Expenditures for improvements that add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are expensed when incurred. When depreciable properties are retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is included in the Consolidated Statements of Operations. Depreciation is provided over the estimated useful lives of the individual assets using the straight-line method for financial reporting purposes. REVENUE RECOGNITION Advertising revenues are recognized in the period during which the spots are aired. Subscription revenues are recognized in the period to which they pertain or when the programming event to which they relate is aired. Syndication revenues are recognized in the period in which the agreement is executed, provided certain conditions of sale have been met, including availability of the product for broadcast or sale. Motion picture revenues are recognized as films are exhibited. Certain distribution contracts provide for receipt of nonrefundable minimum guarantees which are recognized when the film is available for exhibition, providing other conditions of sale have been met. Revenues in excess of the nonrefundable guarantees are not recognized until earned. INTEREST Interest expense is shown net of interest income of $13,864,000, $11,466,000 and $10,533,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Costs associated with the refinancing and issuance of debt as well as debt discounts, if any, are expensed as interest using the interest method over the appropriate term of the related debt agreement. The Company enters into interest rate swap agreements with commercial banks to mitigate possible rising interest rates. These agreements are designated as hedges of interest rates, and the differential to be paid or received on interest rate swaps is accrued as an adjustment to interest expense as interest rates change. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), effective January 1, 1993. Differences in recording certain income and expenses for financial reporting and income tax purposes relate principally to amortization of film costs, recognition of revenue on syndication contracts and depreciation of fixed assets. Investment tax credits are accounted for on the "flow-through" method. See Note 7 of Notes to Consolidated Financial Statements. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share and common share equivalent is computed by dividing net income (loss) applicable to common stock by the weighted average number of outstanding shares of common stock and common stock equivalents during 1993, 1992 and 1991. Common stock equivalents are principally the incremental shares associated with the Class C Convertible Preferred Stock (the "Class C Preferred Stock") and outstanding stock options. Fully diluted income (loss) per share amounts are similarly computed, but include the effect, when dilutive, of the Company's other potentially dilutive securities. The Company's zero coupon subordinated convertible notes due 2004 and 2007 are excluded from the 1993, 1992 and 1991 calculations of net income (loss) per common share due to their anti-dilutive effect. The difference between the primary and fully diluted earnings per share is not significant. See Note 5 and Note 10 of Notes to Consolidated Financial Statements. NOTE 2 ACQUISITIONS In December 1991, the Company invested $48,750,000 in a newly formed joint venture (the "Joint Venture"), of which $30,000,000 related to a 50% common stock interest and $18,750,000 related to a preferred stock interest. The other investors were Apollo Investment Fund, L.P. ("Apollo") and its affiliate, Altus Finance, S.A. ("Altus" and, together with Apollo, the "Investors"). The Joint Venture acquired, for $262,500,000 in cash, all of the stock of The Great American Entertainment Company ("GAEC"), the subsidiaries of which owned Hanna-Barbera Productions, Inc. and the Hanna-Barbera Film Library 34 10 (the "HB Library"), which consists of over 3,000 half-hours of animated programming. The purchase price for GAEC was financed in part through bank borrowings of $180,000,000 by the Joint Venture and investments aggregating $97,500,000 in the Joint Venture by the Investors and the Company. Pursuant to the merger, the name of GAEC, the surviving corporation and as a result a wholly-owned subsidiary of the Joint Venture, was changed to Hanna-Barbera Entertainment Co., Inc. Concurrently with the acquisition, wholly-owned subsidiaries of the Company acquired, for $50,000,000, worldwide television distribution rights to the HB Library and certain related receivables from Worldvision Enterprises, Inc., an affiliate of GAEC. The Company expects to receive approximately $13,950,000 for the receivables purchased from Worldvision Enterprises, Inc., of which $11,079,000 and $8,584,000 had been received at December 31, 1993 and 1992, respectively. The remaining $36,050,000 of distribution assets is being amortized on a straight-line basis over a period of 20 years. In addition, the Company acquired for $7,500,000, plus the assumption of certain liabilities, the animated entertainment production business and animated projects in development of GAEC and its subsidiaries. On December 29, 1993, the Company acquired the remaining 50% interest in the Joint Venture in a transaction consisting of the purchase of the common stock held by Apollo for approximately $68,000,000 in cash, the acquisition for $33,000,000 of a senior note of the Joint Venture from Altus and the repayment of all indebtedness and the assumption of liabilities of the Joint Venture. The acquisition of the Joint Venture was accounted for by the purchase method of accounting. On December 22, 1993, the Company acquired from Main Street Partners, Sony Pictures Entertainment, Inc. and Group W Investments, Inc. the equity interests in Castle Rock Entertainment ("Castle Rock"), a motion picture and television production company, for approximately $100,000,000 in cash and approximately $284,000,000 for the repayment of certain outstanding indebtedness, other liabilities assumed and other acquisition costs. The acquisition of Castle Rock was also accounted for by the purchase method of accounting. Goodwill in the amount of $98,529,000 was recognized as the excess of total purchase price over net assets acquired in the transaction, and is being amortized on a straight-line basis over 20 years. See Note 16 of Notes to Consolidated Financial Statements for discussion of a business combination completed after the end of the year and the unaudited pro forma statements of operations for the years ended December 31, 1993 and 1992 which give effect to that acquisition and to the acquisition by the Company of Castle Rock together with the acquisition by the Company of the remaining 50% interest in the Joint Venture (together, the "Acquisitions") for those periods assuming that the Acquisitions had occurred at the beginning of the periods presented. In March 1993, the Company acquired a 27.5% limited partnership interest in n-tv, a 24-hour German language news channel, for $19,205,000 of which $11,654,000 was determined to be goodwill. During the period from purchase through December 31, 1993, the Company also contributed $16,054,000 in additional capital or advances convertible into capital, all of which was determined to be goodwill. This goodwill is being amortized on a straight-line basis over 20 years. The Company has committed to additional capital and advances to the limited partnership of $6,053,000 in 1994. The Company's ownership percentage in n-tv was 25.8% at December 31, 1993. The Company is accounting for this investment using the equity method and its share of the undistributed net loss of n-tv for the year ended December 31, 1993 was $18,622,000. The summarized financial position and results of operations of n-tv follow:
December 31, in thousands 1993 - ---------------------------------------------------------------------------- Current assets $ 6,335 Noncurrent assets 20,115 Current liabilities 36,588 ============================================================================
Year ended December 31, in thousands 1993 - ---------------------------------------------------------------------------- Revenue $ 8,222 Operating loss (84,169) Net loss (85,815) ============================================================================
The Company's other unconsolidated subsidiaries and 50% or less owned entities are insignificant. 35 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. NOTE 3 FILM COSTS The following table sets forth the components of unamortized film costs:
December 31, in thousands 1993 1992 - --------------------------------------------------------------------------- Purchased program rights $1,172,921 $ 936,582 Produced programming Released 166,768 30,595 Completed and not released 17,654 21,987 In process 153,630 71,138 Episodic television 89,077 21,462 Licensed program rights 231,385 207,442 Prepaid licensed program rights 116,933 140,962 - --------------------------------------------------------------------------- 1,948,368 1,430,168 Less current portion 314,637 243,544 - --------------------------------------------------------------------------- $1,633,731 $1,186,624 ===========================================================================
Episodic television includes serial television episode program costs. Prepaid licensed program rights represent licensed program rights for which payments have been made but the films are currently unavailable for use. As these programs become available for use they are reclassified to licensed program rights. See Note 1 of Notes to Consolidated Financial Statements. On the basis of the Company's anticipated total gross revenue estimates, over 83% of released and episodic television produced programming costs at December 31, 1993, will be amortized within the three-year period ending December 31, 1996. Film costs included in Cost of Operations is composed of the following:
Year ended December 31, in thousands 1993 1992 1991 - --------------------------------------------------------------------------- Purchased program rights $ 75,814 $ 79,554 $ 69,112 Produced programming 360,511 333,087 289,548 Licensed program rights 71,503 65,960 50,632 Participants' share and royalties 32,072 21,992 13,740 - --------------------------------------------------------------------------- $539,900 $500,593 $423,032 ===========================================================================
NOTE 4 PROPERTY AND EQUIPMENT Property and equipment is summarized as follows:
December 31, Estimated in thousands 1993 1992 useful lives - --------------------------------------------------------------------------- Buildings $138,332 $125,019 10-50 years Equipment and furniture 210,985 184,175 3-15 years Transponders 46,053 44,954 11-13 years Land 21,019 11,019 Other 18,462 15,608 6-15 years - --------------------------------------------------------------------------- 434,851 380,775 Less accumulated depreciation 209,623 167,958 - --------------------------------------------------------------------------- $225,228 $212,817 ===========================================================================
Buildings include capital leases of $19,920,000 at December 31, 1993 and $21,314,000 at December 31, 1992. Accumulated depreciation related to capital leases was $17,037,000 and $15,691,000, respectively. Depreciation expense related to capital leases was $1,346,000, $1,595,000 and $1,441,000 for the years ended December 31, 1993, 1992 and 1991, respectively. In 1989, the Company, acting through a joint venture arrangement with Home Box Office, Inc. ("HBO"), negotiated an agreement with Hughes Communications Galaxy, Inc. ("Hughes") for the purchase of five transponders, with an option to purchase three additional transponders. The option to purchase one of the additional transponders has since been cancelled. In December 1991, the Company entered into a sale/leaseback transaction with respect to four of these satellite transponders to be effective when the transponders were ready for commercial operation following the satellite's launch. The four transponders were sold by the Company at fair market value to an unaffiliated third party that agreed to lease such transponders back to the Company pursuant to an operating lease. The Company received $45,000,000 in net cash proceeds from the sale on May 8, 1992, the date the transponders were ready for commercial operation. The Company deferred the gain on the transaction and is recognizing it as a reduction of the rental expense over the term of the lease, which is approximately 8 1/2 years. The above table includes $9,107,000 in 1993 and $8,602,000 in 1992 of progress payments towards the construction of the remaining Company-owned transponder. 36 12 The Company has long-term noncancellable operating lease commitments for vehicles, sports facilities, satellite transmission facilities and office space. Total rental expense for these operating leases is summarized as follows:
Year ended December 31, in thousands 1993 1992 1991 - --------------------------------------------------------------------------- Total rental expense $78,137 $66,658 $58,581 Contingent rental expense 9,218 17,057 23,776 - ---------------------------------------------------------------------------
Future minimum rental payments at December 31, 1993 for noncancellable operating leases with remaining terms in excess of one year aggregate $335,555,000 and are payable as follows: 1994 - $56,725,000; 1995 - $48,463,000; 1996 - $45,060,000; 1997 - $40,696,000; 1998 - $35,905,000; 1999 and thereafter in the aggregate - $108,706,000. NOTE 5 LONG-TERM DEBT Long-term debt consists of:
December 31, in thousands 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Bank credit facilities $1,225,000 $ 710,000 Payable to banks by CNN Center Ventures - 40,000 12% Senior subordinated debentures due October 15, 2001, net of unamortized discount of $3,268 and $3,551 536,732 536,449 8 3/8% Senior Notes due July 1, 2013, net of unamortized discount of $2,675 in 1993 297,325 - Zero coupon subordinated convertible notes, 8% yield, due October 26, 2004, net of unamortized discount of $422,970 in 1992 - 277,030 Zero coupon subordinated convertible notes, 7.25% yield, due February 13, 2007, net of unamortized discount of $353,368 and $369,088 228,688 212,968 Obligations under capital leases due in varying amounts through 1999, net of imputed interest of $1,075 and $1,384 6,353 7,274 Other debt, net of imputed interest of $29 and $139, due in varying amounts through 1994, interest at fixed rates ranging from 6.00% to 9.49% 2,510 2,289 - --------------------------------------------------------------------------------------------------------------------- 2,296,608 1,786,010 Less current portion 2,051 76,959 - --------------------------------------------------------------------------------------------------------------------- $2,294,557 $1,709,051 =====================================================================================================================
BANK CREDIT FACILITIES On July 1, 1993, the Company entered into a credit agreement (the "1993 Credit Agreement") with a group of banks pursuant to which such banks extended a $750,000,000 unsecured revolving credit facility. On December 15, 1993, the 1993 Credit Agreement was amended, among other things, to increase the amount available for borrowing to $1,500,000,000. Amounts available for borrowing or reborrowing under this revolving facility will automatically decrease by $75,000,000 as of the last business day of the calendar quarters ending March 31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998, and by $150,000,000 as of the last business day of each quarter thereafter until December 31, 2000, at which time the revolving credit facility will terminate. Under the 1993 Credit Agreement, amounts repaid under the revolving credit facility may be reborrowed subject to borrowing availability. The amount of borrowing availability is subject to other provisions of the 1993 Credit Agreement, including requirements that (a) minimum ratios be maintained, as from time to time are in effect, of funded debt to cash flow, cash flow to interest expense and cash flow to fixed charges; and (b) there does not exist, and that such borrowing would not create, a default or event of default, as defined. These covenants are similar to, though generally less restrictive than, the covenants in the credit agreement entered into by the Company in 1989, as amended (the "1989 Credit Agreement"). Simultaneous with the execution of the 1993 Credit Agreement in July 1993, the Company cancelled a $360,000,000 and a $200,000,000 unsecured revolving credit facility governed by the 1989 Credit Agreement. On 37 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. December 21, 1993, the remaining facilities under the 1989 Credit Agreement, a $700,000,000 and a $140,000,000 unsecured term loan, were repaid and cancelled. Amounts outstanding under the 1989 and 1993 Credit Agreements bear interest at varying rates on the basis of different rate indices and the Company's operating performance. Interest is payable quarterly or at three-month intervals. The interest rates of the credit agreements ranged from 4.07% to 6.00% and 4.44% to 6.13% during the years ended December 31, 1993 and 1992, respectively. The Company pays fees of 3/8 of 1% per annum on the average unborrowed portion of the total amount available for borrowing. Approximately $1,225,000,000 and $750,000,000 of the Company's indebtedness bore interest on a floating basis tied to short-term market indices at December 31, 1993 and 1992, respectively. At December 31, 1993 and 1992, the weighted average interest rates associated with this indebtedness were 4.69% and 4.45%, respectively. The Company has interest rate swap agreements having a total notional principal amount of $780,000,000 and $650,000,000 at December 31, 1993 and 1992, respectively, with commercial banks. The increase in the notional principle amount of $130,000,000 was assumed by the Company in connection with the acquisition of the remaining 50% interest in the Joint Venture. See Note 2 of Notes to Consolidated Financial Statements. No swap agreements were terminated in 1993 or 1992. The notional amounts of the contracts that will expire in 1994 and 1995 are $300,000,000 and $480,000,000, respectively. The weighted average receipt and payment rates associated with the swap agreements were 4.16% and 9.07%, respectively, at December 31, 1993 and were 4.44% and 9.80%, respectively, at December 31, 1992. The Company has exposure to credit risk but does not anticipate nonperformance by the counterparties to these agreements. The 1993 Credit Agreement contains restrictive covenants (regarding, among other things, additional indebtedness, liens, guarantees, dispositions, investments and dividend payments), and requires the maintenance of specified levels of operating cash flow and certain ratios of operating cash flow to funded debt, operating cash flow to fixed charges and operating cash flow to interest expense, as defined. Furthermore, the terms of the 1993 Credit Agreement, the 12% senior subordinated debentures, the 8 3/8% Senior Notes and the zero coupon subordinated convertible notes due 2007 provide each holder of such securities with the right, at the holder's option, to require the Company to purchase all or any portion of the holder's securities in the event of a change in control. A change in control is deemed to occur when neither R. E. Turner and his estate, heirs and legatees, those parties who beneficially owned the Company's Class C Preferred Stock at the date of refinancing nor any combination thereof have the power to vote at least a majority of the voting power of the Company's voting securities. CNN CENTER VENTURES CREDIT AGREEMENT On December 21, 1993, the Company cancelled a $125,000,000 revolving credit agreement governed by the CNN Center Ventures Credit Agreement that was guaranteed by the Company and secured by a first mortgage lien on the CNN Center and adjacent parking deck facility. 12% SENIOR SUBORDINATED DEBENTURES The 12% senior subordinated debentures (the "Debentures") are redeemable at the Company's option at par plus 4.5%, 3.0% and 1.5% of the principal amount after October 15, 1994, 1995 and 1996, respectively, and at par on and after October 15, 1997, in each case together with accrued interest to the redemption date. The Company is required to redeem $137,500,000 principal amount on both October 15, 1999 and October 15, 2000, at par plus accrued interest to the redemption date. Interest on the Debentures is paid semi-annually. The Debentures contain restrictive covenants similar to those discussed under the 1993 Credit Agreement and, in addition, require the Company to maintain a minimum net worth, as defined. SHELF REGISTRATION On May 6, 1993, the Company filed a registration statement with the Securities and Exchange Commission (the "Shelf Registration") to allow the Company to offer, from time to time, the sale of up to $1,100,000,000 of unsecured senior debt or unsecured senior subordinated debt securities, consisting of notes, debentures, or other evidence of indebtedness. 38 14 8 3/8% SENIOR NOTES On July 8, 1993, the Company sold $300,000,000 of 8 3/8% Senior Notes due July 1, 2013 (the "Notes") under the Shelf Registration. The net proceeds to the Company were approximately $291,445,000, after market and underwriting discounts. The Notes bear interest at the rate of 8 3/8% per annum payable semi-annually on January 1 and July 1 of each year, commencing January 1, 1994. The Notes are not redeemable at the option of the Company. Each holder has the right to require the Company to repurchase such holder's Notes in whole, but not in part, upon the occurrence of certain triggering events, including, without limitation, a change of control, certain restricted payments or certain consolidations, mergers, conveyances or transfers of assets, each as defined in the indenture relating to the Notes. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes prior to maturity. The covenants governing the Notes limit the Company's ability to incur additional funded debt by requiring the maintenance of a minimum consolidated interest coverage ratio, as defined. ZERO COUPON SUBORDINATED CONVERTIBLE NOTES DUE 2004 On July 9, 1993, the Company called for redemption all of its zero coupon subordinated convertible notes due 2004 (the "Convertible Notes due 2004"), of which $290,507,000, net of unamortized discount of $409,493,000, was outstanding at August 9, 1993. The Convertible Notes due 2004 could have been converted into shares of Class B Common Stock, par value $0.0625 per share, at any time before the close of business on August 9, 1993, at the rate of 15 shares of Class B Common Stock for each $1,000 principal amount at maturity. All Convertible Notes due 2004 which were not converted into shares of Class B Common Stock were redeemed on August 9, 1993, at a redemption price of $415.01 in cash for each $1,000 principal amount at maturity. The price reflects accrued original issue discount at the rate of 8% compounded semi-annually to the redemption date. ZERO COUPON SUBORDINATED CONVERTIBLE NOTES DUE 2007 The zero coupon subordinated convertible notes due February 13, 2007 (the "Convertible Notes due 2007") were issued at $343.61 per $1,000 principal amount at maturity with no periodic payments of interest. The issue price of the Convertible Notes due 2007 represents a yield to maturity of 7.25% annually. Each $1,000 principal amount at maturity is convertible at the option of the holder, at any time on or prior to maturity, into 12.783 shares of Class B Common Stock. The conversion rate will not be adjusted for accrued original issue discount but will be subject to adjustment upon the occurrence of certain events affecting Class B Common Stock and, upon conversion, the holder will not receive any cash payment representing accrued original issue discount. The Convertible Notes due 2007 are redeemable on or after February 13, 1995, at the option of the Company, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. Each holder of Convertible Notes due 2007 will have the option of requiring the Company to purchase such holder's Convertible Notes due 2007 on February 13, 1997, for a purchase price of $490.58 (the issue price plus accrued original issue discount to such date) per $1,000 principal amount at maturity to be paid, at the option of the Company, in cash or shares of Class B Common Stock or any combination thereof. OTHER Maturities of long-term debt, including debt discount, for each of the five years following December 31, 1993, are: $2,392,000; $1,365,000; $1,336,000; $1,345,000; and $26,364,000, respectively, and $2,624,221,000 after 1998. Included in the maturities of long-term debt are obligations under capital leases of $1,279,000; $1,275,000; $1,284,000; $1,288,000; and $1,301,000 for each of the five years following December 31, 1993, respectively, and $1,001,000 after 1998. Obligations for film contracts payable and obligations under employment agreements, including imputed interest, for each of the five years following December 31, 1993, are: $33,958,000; $24,594,000; $16,210,000; $12,592,000; and $1,335,000, respectively, and $12,654,000 after 1998. The redemption of the Convertible Notes due 2004 and cancellation of the 1989 Credit Agreement and the CNN Center Ventures Credit Agreement resulted in an extraordinary charge in 1993 of $10,693,000, net of approximately $6,253,000 of tax benefit, representing the write-off of unamortized debt issue costs. 39 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The following methods and assumptions were used by the Company to estimate the fair value of its significant financial instruments: CASH AND CASH EQUIVALENTS The carrying amount reported as of December 31, 1993 and 1992 approximates fair value. INSTALLMENT CONTRACTS RECEIVABLE Installment contracts receivable are recorded net of discount and as such the carrying amount reported as of December 31, 1993 and 1992 approximates fair value. FILM CONTRACTS PAYABLE Film contracts payable are recorded net of discount and as such the carrying amount reported as of December 31, 1993 and 1992 approximates fair value. LONG-TERM DEBT The borrowings at December 31, 1993 under the Company's 1993 Credit Agreement and at December 31, 1992 under the 1989 Credit Agreement and the CNN Center Ventures Credit Agreement have floating interest rates and, therefore, approximate fair value. The fair value at December 31, 1993 of the Debentures, the Notes and the Convertible Notes due 2007 and at December 31, 1992 of the Debentures, the Convertible Notes due 2004 and the Convertible Notes due 2007 is based on quoted market values on the respective dates. See Note 5 of Notes to Consolidated Financial Statements. INTEREST RATE SWAP AGREEMENTS The fair value of the interest rate swap agreements is the amount the counterparties would charge the Company to terminate the swap agreements on that date. See Note 5 of Notes to Consolidated Financial Statements. The carrying amounts and estimated fair values of the Company's long-term debt, net of obligations under capital leases, including amounts related to the interest rate swap agreements of $30,800,000 and $61,900,000 at December 31, 1993 and 1992, respectively, are as follows:
December 31, in thousands 1993 1992 - --------------------------------------------------------------------------- Fair value $ 2,386,000 $ 1,923,000 Carrying amount 2,290,000 1,779,000 - ---------------------------------------------------------------------------
The excess of fair value over carrying value of long-term debt, net of obligations under capital leases, is principally due in both years to a decline in market interest rates since the original issuance of the Debentures and the Convertible Notes due 2007 and the inception of the interest rate swap agreements. NOTE 7 INCOME TAXES Effective January 1, 1993, the Company adopted FAS 109. The adoption of FAS 109 changes the Company's method of accounting for income taxes from the deferred method pursuant to Accounting Principles Board Opinion No. 11, to an asset and liability approach. FAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability. The cumulative adjustment for income taxes as a result of the adoption of FAS 109 on January 1, 1993 was a non-recurring charge to earnings of $306,000,000 and is reflected in the 1993 Consolidated Statement of Operations as a cumulative effect of a change in accounting for income taxes. The amount relates primarily to the 1986 acquisition of the TEC Library where there were substantial differences between amounts recorded for financial reporting purposes and for income tax purposes. The FAS 109 cumulative adjustment includes $45,000,000 representing the Company's 50% share of the FAS 109 cumulative adjustment recorded by Hanna-Barbera Entertainment Company, now Hanna-Barbera Holding Company, which was acquired in 1991. See Note 2 of Notes to Consolidated Financial Statements. 40 16 The provisions (benefits) for income taxes for the three years ended December 31, 1993 consist of the following:
Year ended December 31, in thousands 1993 1992 1991 - --------------------------------------------------------------------------- Current Federal $ 12,646 $ 45,105 $ 42,642 State and local 9,381 11,743 8,693 International 12,720 8,836 6,711 Deferred Federal 18,147 - - Increase in federal tax rate 6,788 - - State and local (6,691) - - International (4,867) - - - --------------------------------------------------------------------------- Provision for income taxes before extraordinary item 48,124 65,684 58,046 Extraordinary item - realization of operating loss carryforwards Federal - (41,308) (39,985) State - (2,253) (3,015) - --------------------------------------------------------------------------- Net provision for income taxes $ 48,124 $ 22,123 $ 15,046 ===========================================================================
The provision for income taxes differs from the amount computed by applying the applicable U.S. statutory federal income tax rate (35% in 1993 and 34% in 1992 and 1991) to pretax income from continuing operations as a result of the following items:
Year ended December 31, in thousands 1993 1992 1991 - --------------------------------------------------------------------------- Federal tax provision on pretax income before extraordinary items at statutory federal income tax rate $42,199 $33,913 $34,334 Increase (decrease) due to: Increase in federal income tax rate 6,788 - - State and local taxes, net of federal benefit 1,749 7,750 5,739 Equity in income of unconsolidated entity (3,686) - - Purchased film costs and related intangibles - 10,705 9,801 International taxes - 8,836 6,711 Other 1,074 4,480 1,461 - --------------------------------------------------------------------------- Provision for income taxes before extraordinary item $48,124 $65,684 $58,046 ===========================================================================
Deferred tax assets (liabilities) consist of the following:
December 31, in thousands 1993 - ------------------------------------------------------------ Deferred tax assets Accruals and reserves $ 43,478 Tax credits and net operating losses 39,682 Fixed assets 3,547 Other 25,924 - ------------------------------------------------------------ 112,631 - ------------------------------------------------------------ Valuation allowance on deferred tax assets (8,723) - ------------------------------------------------------------ Deferred tax liabilities Film costs and related intangibles (417,018) Accounts receivable (44,247) Other (18,620) - ------------------------------------------------------------ (479,885) - ------------------------------------------------------------ $(375,977) ============================================================
Current income taxes payable in the amount of $28,800,000 is included in other current liabilities. At December 31, 1993, investment tax credit ("ITC") carryforwards of approximately $4,100,000 and foreign tax credit ("FTC") carryforwards of approximately $3,100,000 were available to offset future federal income tax. For tax purposes, the ITC carryforwards will expire from 1998 through 2001; and the FTC carryforwards will expire in 1997. Additionally, an alternative minimum tax credit of approximately $6,000,000 is available to offset the Company's regular tax liability in future years. In connection with the Company's 1986 purchase of Metro-Goldwyn-Mayer Inc./United Artists ("MGM/UA") the Company also acquired certain ITC carryforwards which can only be used to reduce the federal income tax liability of Turner Entertainment Co. ("TEC"), a wholly-owned subsidiary of the Company. As of December 31, 1993, approximately $16,700,000 of ITC carryforwards remain available to offset the future tax liability of TEC. The realization of tax benefits from the utilization of the remaining TEC carryforwards is dependent on TEC having future taxable income. The unused ITC carryforwards will begin expiring in 1998. In connection with the Company's 1993 purchase of the remaining 50% of the Joint Venture, the Company also acquired certain net operating loss ("NOL") and FTC carryforwards which can only be used to reduce the federal income tax liability of the Joint Venture. As of December 31, 1993, approximately $31,700,000 of NOL carryforwards and approximately $1,100,000 of FTC carryforwards remain available to offset the future tax liability of the Joint Venture. 41 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. The Company's tax liability has been reduced by approximately $13,359,000 in 1993 representing realization of the tax benefits associated with the exercise of stock options. This benefit has been recorded as an increase to the Company's capital in excess of par value. NOTE 8 COMMITMENTS AND CONTINGENCIES COMMITMENTS In addition to long-term noncancellable operating lease commitments for vehicles, sports facilities, satellite transmission facilities and office space, the Company's principal revenue-producing operations enter into extended commitments integral to their respective operations. At December 31, 1993, the Company was obligated to make future payments of approximately $308,196,000 under contracts for licensed film rights not currently available for use and, therefore, not included in the consolidated balance sheet. The Company also has commitments under contracts for rights to or production of other programming not yet produced of approximately $1,113,191,000 of which $958,664,000 relates to sports programming. Amounts payable for all of the above noted items are as follows: 1994 - $398,467,000; 1995 - $296,857,000; 1996 - $299,130,000; 1997 - $273,015,000; and 1998 and thereafter - $153,918,000. The Company has contracted for newsgathering services and technical support at bureaus and overland transmission services. Minimum commitments for these services with terms in excess of one year aggregate approximately $9,041,000 and are payable in varying amounts through 2019. In June 1990, the Company entered into an exclusive domestic syndication and licensing agreement, as amended, under which the Company committed to make up to a $10,000,000 advance, recoupable against sales over the five-year period beginning September 1997, to the extent that the Company generates less than $72,000,000 of gross sales less distribution costs, as defined, over the five-year period beginning September 1992. Long-term employment contracts currently in effect provide for, among other items, aggregate annual compensation for baseball players and other employees of the Company with extended contracts of approximately $44,991,000 in 1994, $39,013,000 in 1995, $31,882,000 in 1996, $25,367,000 in 1997 and $132,658,000 in 1998 and thereafter. These amounts represent the maximum possible obligation, including potential incentive compensation (although certain incentive compensation cannot be earned by more than one player per season) that can be earned under the terms of the contracts. CONTINGENCIES AND PENDING LITIGATION Because of the nature of its principal revenue-producing activities, the Company is, in the routine operation of its business, subject to litigation, claims, assessments and various legal matters. In the opinion of management, none of these matters is expected to result in a judgment having a material adverse effect on the Company's consolidated financial position or results of operations. Pursuant to an Indemnification Agreement (the "Indemnification Agreement"), as executed in connection with the Company's acquisition of MGM/UA and as supplemented at the time the Company sold certain assets to United Artists Corporation on August 25, 1986, the Company assumed responsibility for a variety of lawsuits and claims from MGM/UA. Generally, these lawsuits and claims arose in the normal course of MGM/UA's business. The Company believes that the resolution of the suits and claims for which it assumed responsibility pursuant to the Indemnification Agreement will not have a material adverse impact on the consolidated financial position or operating results of the Company. NOTE 9 CLASS B CUMULATIVE PREFERRED STOCK On June 3, 1987, the Company issued to a group of investors (the "Units Investors") an aggregate of 12,396,976 units of its securities (the "Units Offering"), each unit composed of one share of the Company's Class B Cumulative Preferred Stock (the "Class B Preferred Stock") and one share of the Company's Class C Preferred Stock, for an aggregate consideration of approximately $568,194,000, or $45.8333 per unit. See Note 10 of Notes to Consolidated Financial Statements. 42 18 The terms of the Class B Preferred Stock provided for redemption at the option of the Company any time after the second dividend payment date, with mandatory redemption in 1999. The carrying value of the Class B Preferred Stock was being accreted to its redemption value ($30.8333 per share plus accrued dividends) using the interest method. Dividends on each share of Class B Preferred Stock accrued cumulatively at the rate of 10% per annum to April 30, 1991, and thereafter at the rate of 12% per annum. Accrued dividends were payable annually on April 30th. In March 1991, the Company offered the holders of the Company's Class B Preferred Stock the option of reinvesting their 1991 cash dividend by purchasing shares of Class B Common Stock at $14.25 per share. On April 30, 1991, the Company paid dividends of $38,224,000 on the Class B Preferred Stock. Holders representing 86% of the outstanding shares of Class B Preferred Stock elected the option offered by the Company and endorsed their dividend checks, aggregating approximately $32,867,000, to the Company in payment of the purchase price of an aggregate of 2,306,478 shares of Class B Common Stock. On June 27, 1991, the Company offered to exchange its Class B Common Stock for any and all of its Class B Preferred Stock at an exchange ratio of 1.927 shares of Class B Common Stock for each share of Class B Preferred Stock, plus such additional shares of Class B Common Stock valued at $16.00 per share as were necessary to satisfy all accrued dividends through the date of exchange (the "Exchange Offer"). The Exchange Offer expired on July 26, 1991. Holders of 98.6% of the outstanding Class B Preferred Stock, which had an aggregate liquidation value of $376,900,000, exchanged their shares for 24,238,018 shares of Class B Common Stock. Net income per common share for both the Class A Common Stock and Class B Common Stock in 1991 would have been $0.34 if the issuance of the 24,238,018 shares of Class B Common Stock in the Exchange Offer and the 2,306,478 shares of Class B Common Stock issued in relation to the stock dividend had occurred on January 1, 1991. On December 29, 1992, the Company elected to redeem all of the remaining outstanding shares of the Class B Preferred Stock at the redemption price of $33.34 per share. The total redemption price of $5,929,000 included $446,000 of accrued dividends. NOTE 10 STOCKHOLDERS' EQUITY (DEFICIT) COMMON STOCK Prior to June 1992, each share of Class A and Class B common stock was identical in all respects except for cash dividends and voting privileges. In the case of cash dividends, the amount of such dividends payable on Class A Common Stock was 90% of the amount payable per share on the Class B Common Stock. In June 1992, the Company amended its Articles of Incorporation to permit the payment of equal cash dividends per share on the Class A Common Stock and Class B Common Stock. The Class A Common stockholders are entitled to one vote per share and the Class B Common stockholders are entitled to one-fifth vote per share. In February 1992, the Board of Directors, acting through its Finance Committee, declared a quarterly cash dividend upon the Company's outstanding shares of Class A Common Stock and Class B Common Stock, payable at the rate of $0.01125 for each share of Class A Common Stock held and $0.0125 for each share of Class B Common Stock held. In addition, holders of the Company's outstanding Class C Preferred Stock were entitled to an equivalent cash dividend ($0.0750 for each share held) based on the number of underlying shares of Class B Common Stock. The cash dividend, aggregating approximately $3,049,000 was paid on March 19, 1992, to shareholders of record at the close of business on March 3, 1992. Following the amendment of the Company's Articles of Incorporation to permit the payment of equal cash dividends per share on the Class A Common Stock and the Class B Common Stock, the Finance Committee declared dividends payable for each of the remaining quarters in 1992 at the rate of $0.0125 for each outstanding share of Class A Common Stock and Class B Common Stock and $0.0750 for each share of Class C Preferred Stock. Cash dividends of $3,134,000, $3,139,000 and $3,275,000, respectively, were paid each quarter pursuant to these dividend declarations. In 1993, the Board of Directors declared cash dividends on the Company's outstanding shares of Class A Common Stock and Class B Common Stock, payable at the rate of $0.0175 for each share held on the respective 43 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. record dates each quarter. In addition, holders of the Company's outstanding Class C Preferred Stock were entitled to equivalent cash dividends of $0.105 for each share held on the record date each quarter based on the number of shares of Class B Common Stock which would be receivable upon conversion of each share of Class C Preferred Stock. Cash dividends of $4,596,000, $4,597,000, $4,606,000 and $4,608,000, respectively, were paid each quarter pursuant to these dividend declarations. The Company's ability to pay cash dividends to holders of shares of the Class A and Class B Common Stock and the Class C Preferred Stock is subject to certain covenants in the Company's outstanding debt instruments, currently the most restrictive of which limits the maximum aggregate amount of dividends permitted to be paid annually to such holders to $30,000,000. During 1993, 287,930 shares of Class B Common Stock were issued to certain officers and employees and in conjunction with the redemption of the Convertible Notes due 2004. See Note 5 of Notes to Consolidated Financial Statements. On September 30, 1992, the Company issued 11,500,000 shares of Class B Common Stock through a public offering, resulting in net proceeds of approximately $204,644,000. CLASS C CONVERTIBLE PREFERRED STOCK In connection with the Company's Units Offering, the Company issued 12,396,976 shares of Class C Preferred Stock. See Note 9 of Notes to Consolidated Financial Statements. The terms of the Class C Preferred Stock provide for conversion to Class B Common Stock, at the option of the holder, at a current rate of six shares of Class B Common Stock for every one share of Class C Preferred Stock at any date prior to redemption. The Class C Preferred stockholders are entitled to vote as though they held the Class B Common Stock underlying the Class C preferred shares and are entitled to vote as a separate class for seven members of the Company's 15 member board of directors. In addition, holders of the Class C Preferred Stock are entitled to dividends (non-cumulative) based on the number of underlying shares of Class B Common Stock. If the number of outstanding shares of Class C Preferred Stock is less than 4,000,000, the right of the Class C preferred stockholders to vote as a separate class for seven directors ceases and the Company may redeem the then outstanding shares at a redemption price per share equal to the common stock equivalent price on the redemption date. STOCK OPTIONS The Company has two stock option plans under which options may be granted to certain key employees at prices determined by the Stock Option and Compensation Committee. The 1983 Stock Option Plan (the "1983 Plan") expired in 1993; no options were granted, exercised, cancelled or expired under this plan in 1992 or 1993. Under the 1988 Stock Option Plan (the "1988 Plan"), options may not be granted at less than par value on the date of grant but may be granted at less than the fair market value ("FMV") on the date of grant, except for an incentive stock option. The option price per share subject to an incentive stock option may not be less than the greater of 100% of the FMV per share on the grant date, or the par value per share; however, in the case of an incentive stock option granted to a 10% shareholder, the option price per share may not be less than the greater of 110% of FMV per share on the date of grant or the par value per share. All options granted under the 1988 Plan have been granted at FMV. At December 31, 1993, the total number of shares available for the grant of options under the 1988 Plan was 2,883,690 Class B common shares. Under the 1993 Stock Option Plan (the "1993 Plan"), adopted November 15, 1993, options may not be granted at less than par value on the date of grant but may be granted at less than the FMV on the date of grant, except for an incentive stock option. The option price per share subject to an incentive stock option may not be less than the greater of 100% of the FMV per share on the grant date, or the par value per share; however, in the case of an incentive stock option granted to a 10% shareholder, the option price per share may not be less than the greater of 110% of FMV per share on the date of grant or the par value per share. At December 31, 1993, the total number of shares available for the grant of options under the 1993 Plan was 5,000,000 Class B common shares; no options had been granted. 44 20 Transactions relating to rights to purchase stock under the 1983 Plan and 1988 Plan for the three years ended December 31, 1993, are summarized below:
Number Exercise Price Class A Exercise Price Class B of shares Common Stock Common Stock (1) -------------------------------------------------------------------------------- in thousands, except share data Class A Class B Per share Aggregate Per share Aggregate - --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1990 1,752 4,052,505 Granted - 683,100 Exercised (1,752) (437,764) $2.854 $5 (2) $1,355 Cancelled or expired - (38,238) - --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 - 4,259,603 Granted 649,550 Exercised (479,164) (2) $2,328 Cancelled or expired (85,869) - --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 4,344,120 Granted 2,070,300 Exercised (754,621) (2) $7,490 Cancelled or expired (188,025) - --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 5,471,774 =====================================================================================================================
(1) The rights outstanding at December 31, 1993, are exercisable at prices ranging from $2.792 to $27.125 per share for a total exercise price of $97,455,000. The majority of the stock options are exercisable at $13.170 (1,482,351 shares), $25.625 (1,135,300 shares), $27.125 (800,000 shares), $2.792 (724,438 shares), $19.125 (558,000 shares) and $19.500 (470,384 shares). (2) Options exercised under the 1983 Plan and 1988 Plan for the three years ended December 31, 1993, are summarized as follows:
Exercise Price -------------------------------------------- in thousands, except share data Number of shares Per share Aggregate - --------------------------------------------------------------------------------------------------------------------- 391,912 $ 2.792 $1,094 1,752 2.854 5 29,500 4.500 133 14,600 8.416 123 - ----------------------------------------------------------------------------------------------------------------- Options exercised 1991: Class B Common Stock 437,764 $1,355 ================================================================================================================= 368,921 $ 2.792 $1,030 14,750 4.500 66 5,400 8.416 45 90,093 13.170 1,187 - ----------------------------------------------------------------------------------------------------------------- Options exercised 1992: Class B Common Stock 479,164 $2,328 ================================================================================================================= 287,445 $ 2.792 $ 802 8,000 11.334 91 339,996 13.170 4,478 3,000 14.000 42 1,333 14.125 19 1,666 15.125 25 3,000 15.250 46 30,000 16.667 500 33,333 17.500 583 25,000 19.125 478 21,848 19.500 426 - ----------------------------------------------------------------------------------------------------------------- Options exercised 1993: Class B Common Stock 754,621 $7,490 =================================================================================================================
The Company has reserved shares of common stock for issuance upon exercise of outstanding stock options, conversion of the Class C Preferred Stock and the Convertible Notes due 2007. 45 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. NOTE 11 RETIREMENT SAVINGS PLANS The Company has four domestic defined contribution retirement plans. The Turner Broadcasting System, Inc. Retirement Savings Plan is a tax qualified savings plan with matching Company contributions, which covers essentially all employees of the Company, except the Atlanta National League Baseball Club, Inc., employees based outside the United States and employees subject to collective bargaining agreements. A non-qualified supplemental savings plan with matching Company contributions covers employees with compensation in excess of the amount taken into consideration by the tax qualified savings plan and a non-qualified retirement plan covers certain key employees. The Atlanta Braves Retirement Savings Plan is a tax qualified savings plan without a matching Company contribution, which covers non-uniformed employees of the Atlanta National League Baseball Club, Inc. The Company has a defined benefit retirement plan which covers non-uniformed personnel of the Atlanta National League Baseball Club, Inc. The Company also has a defined contribution retirement plan which is tax qualified in the United Kingdom and covers essentially all employees in London. The Company's total contribution for all plans described above was $10,279,000, $9,484,000, and $7,333,000 for 1993, 1992 and 1991, respectively. NOTE 12 RELATED PARTY TRANSACTIONS Most of the investors in the Company's Units Offering have ongoing business relationships with the Company, primarily as operators, directly or through affiliates, of cable television systems which receive and distribute to their subscribers programming provided by the Company's cable television operations. See Note 9 of Notes to Consolidated Financial Statements. The Company recorded subscription fees from the Unit Investors for the delivery of such cable services (CNN, Headline News, TNT and Cartoon Network), before deductions for advertising allowances, of approximately $274,317,000 for 1993, $252,257,000 for 1992 and $233,142,000 for 1991. These amounts constituted approximately 54%, 57% and 56% of the Company's total subscription revenue for CNN, Headline News, TNT and Cartoon Network during each respective year. At December 31, 1993 and 1992, the receivables from the Unit Investors aggregated approximately $94,011,000 and $81,453,000, respectively. Advertising revenues received by the Company during 1993 were also indirectly dependent to a substantial degree on cable television systems operated by the Unit Investors or their affiliates since subscribers to those systems constituted approximately 67%, 66%, 67%, 66% and 63% of the cable audience coverage as of December 1993 for TBS SuperStation, CNN, Headline News, TNT and Cartoon Network, respectively. Pursuant to a 1986 agreement with Metro-Goldwyn-Mayer Inc.'s ("MGM") predecessor, MGM became the designated distributor in the home video market of most MGM and pre-1950 Warner Bros. films in the TEC Library, both domestically and internationally, and certain RKO films internationally. The distribution agreement, (the "Home Video Agreement") as subsequently amended, provides for a 15-year term commencing June 6, 1986 with distribution fees payable based primarily on the suggested retail price of the films sold. In November 1990, MGM entered into an agreement with Warner Home Video, Inc. ("WHV"), a wholly-owned subsidiary of Time Warner Inc. ("TWI"), wherein WHV agreed to service certain MGM obligations under the Home Video Agreement. Revenues recorded in 1993, 1992 and 1991 pursuant to this agreement were $81,723,000, $105,729,000 and $36,500,000, respectively. TWI and its subsidiaries have entered into license agreements with the Company pursuant to which the Company has acquired broadcast rights to certain television and theatrical product. The Company paid an aggregate of approximately $13,933,000, $13,196,000 and $6,800,000 for license fees during 1993, 1992 and 1991, respectively, under these agreements and is committed to pay $37,417,000 through 2001 under these agreements. Additionally, TWI has an ownership interest in n-tv. See Note 2 of Notes to Consolidated Financial Statements. 46 22 NOTE 13 SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information and non-cash investing and financing activities include:
Year ended December 31, in thousands 1993 1992 1991 - --------------------------------------------------------------------------- Cash paid for income taxes $18,405 $12,778 $ 8,829 Disposal of fixed assets 16,327 - - ===========================================================================
In 1993, the Company purchased Castle Rock and the remaining 50% of the Joint Venture and assumed liabilities as of December 31, 1993 (in thousands) as follows: Fair value of assets acquired $644,028 Less: cash paid for capital stock and debt 258,505 cash paid for partnership interest, debt and other acquisition costs 318,923 - --------------------------------------------------------------------------- Liabilities assumed $ 66,600 ===========================================================================
In 1991, the Company purchased the production business of GAEC and its subsidiaries, now Hanna-Barbera Inc., and assumed liabilities as of December 31, 1991 (in thousands) as follows: Fair value of assets acquired $35,089 Less: cash paid for capital stock 7,500 - --------------------------------------------------------------------------- Liabilities assumed $27,589 ===========================================================================
NOTE 14 BUSINESS SEGMENT INFORMATION The Company is a diversified entertainment and information company whose primary business segments include Entertainment and News. Through its subsidiaries, the Company owns and operates three domestic entertainment networks, three international entertainment networks and three news networks. The Company produces, finances and distributes entertainment programming worldwide, with operations in motion pictures, animation and television production, video, television syndication, licensing and merchandising, and publishing. The table on page 48 summarizes the Company's operating results by business segment. Revenues by business segment include revenues between business segments which are accounted for on substantially the same basis as revenues from unaffiliated customers. Intersegment revenues are primarily fees for production services billed by Entertainment or News, and for lease rentals and facility services billed by the Other Segment. 47 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc.
Year ended December 31, in thousands 1993 1992 1991 - ---------------------------------------------------------------------------------------- Total revenue Entertainment $1,162,282 $1,078,567 $ 869,018 News 599,352 531,071 478,302 Other 182,339 180,678 143,957 Less intersegment revenue (22,367) (20,424) (11,034) - ---------------------------------------------------------------------------------------- $1,921,606 $1,769,892 $1,480,243 ======================================================================================== Operating profit (loss) (1) Entertainment $ 143,245 $ 151,838 $ 146,469 News 212,202 178,404 165,313 Other (33,267) (36,836) (14,839) Equity in income (loss) of unconsolidated entities (2) (20,040) (4,024) 178 - ---------------------------------------------------------------------------------------- $ 302,140 $ 289,382 $ 297,121 ======================================================================================== Depreciation and amortization expense (3) Entertainment $ 6,953 $ 3,976 $ 4,995 News 11,147 9,107 9,022 Other 21,173 20,503 16,893 - ---------------------------------------------------------------------------------------- $ 39,273 $ 33,586 $ 30,910 ======================================================================================== Identifiable assets at end of year Entertainment $2,711,971 $1,921,572 $1,851,133 News 218,040 170,663 152,202 Other 314,851 431,338 393,892 - ---------------------------------------------------------------------------------------- $3,244,862 $2,523,573 $2,397,227 ======================================================================================== Capital expenditures Entertainment $ 12,356 $ 9,800 $ 5,638 News 14,479 9,959 13,995 Other 23,735 27,472 16,278 - ---------------------------------------------------------------------------------------- $ 50,570 $ 47,231 $ 35,911 ========================================================================================
(1) Operating profit (loss) is defined as income (loss) before interest expense, interest income, income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes. (2) Equity in income (loss) of unconsolidated entities includes the results of a 50% interest in Hanna-Barbera Holding Company; a 27.5% interest in n-tv acquired in March 1993; a 96% interest in the Atlanta Hawks; a 44% interest in the SportSouth Network; a one-third interest in a joint venture which operates a computerized ticket sales agency; and costs associated with a commitment for a 50% joint venture interest in Moscow. (3) Includes depreciation on property and equipment and amortization associated with other intangible assets. The Company derives export sales revenues from the transmission of its entertainment and news program services in international markets. In addition, the Company distributes, either directly or through third-party distributors, motion pictures and other filmed entertainment product internationally in the theatrical, home video, pay television, basic cable and over-the-air markets. Total revenues from the export sale of the Company's products and services amounted to approximately $240,000,000, $222,000,000 and $140,000,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Approximately 45%, 24% and 23% of the 1993 export sales were from customers in Europe, Latin America and Asia, respectively. Approximately 58% and 20% of the 1992 export sales were from customers in Europe and Asia. 48 24 NOTE 15 UNAUDITED QUARTERLY FINANCIAL INFORMATION
1993 Three months ended in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31 (3) - --------------------------------------------------------------------------------------------------------------------- Revenue $ 398,424 $ 486,861 $501,289 $535,032 Operating profit (1) 80,250 97,167 59,948 64,775 Income before extraordinary items and the cumulative effect of a change in accounting for income taxes 20,135 31,071 7,154 14,085 Cumulative effect of a change in accounting for income taxes (306,000) -- -- -- Net income (loss)(2) (285,865) 31,071 1,018 9,528 Net income (loss) applicable to Class A Common Stock (73,891) 8,031 263 2,485 Net income (loss) applicable to Class B Common Stock (211,974) 23,040 755 7,043 Earnings per common share Income before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 0.08 $ 0.12 $ 0.02 $ 0.05 Net income (loss) $ (1.08) $ 0.12 $ 0.00 $ 0.04 =====================================================================================================================
1992 Three months ended in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31 (3) - --------------------------------------------------------------------------------------------------------------------- Revenue $ 365,170 $ 409,869 $456,397 $538,456 Operating profit (1) 51,070 89,529 64,105 84,678 Income (loss) before extraordinary item (644) 18,918 5,119 10,668 Net income (2) 731 34,693 12,499 29,699 Net income applicable to Class A Common Stock (4) 149 9,330 3,333 7,490 Net income applicable to Class B Common Stock (4) 404 25,184 8,988 21,454 Earnings per common share Income before extraordinary item $ 0.00 $ 0.07 $ 0.02 $ 0.04 Net income $ 0.00 $ 0.14 $ 0.05 $ 0.11 =====================================================================================================================
(1) Operating profit is defined as income (loss) before interest expense, interest income, income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes. (2) Extraordinary losses on early extinguishments of debt of $10,051,000 and $6,895,000, net of income tax benefits of $3,926,000 and $2,327,000, respectively, for the three months ended September 30, 1993 and December 31, 1993, respectively, and extraordinary income tax benefits related to the utilization of NOL carryforwards of $1,375,000, $15,775,000, $7,380,000 and $19,031,000 for the three months ended March 31, 1992, June 30, 1992, September 30, 1992 and December 31, 1992, respectively, are included in the calculation of net income. (3) The three-month period ended December 31, 1993 includes a $16,000,000 increase in operating profit due primarily to changes in certain estimates based on additional financial information obtained during such period. The three-month period ended December 31, 1992 includes a $16,000,000 estimated charge related to the termination of the Checkout Channel and $12,000,000 in revenue from Major League Baseball related to the addition of two teams to the league. (4) Net income (loss) applicable to common stockholders is reduced by accretion of discount and dividends on Class B Preferred Stock. 49 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Turner Broadcasting System, Inc. NOTE 16 SUBSEQUENT EVENTS On February 3, 1994, the Company sold $250,000,000 of 7.4% Senior Notes due 2004 (the "Senior Notes") and $200,000,000 of 8.4% Senior Debentures due 2024 (the "Senior Debentures" and, together with the Senior Notes, the "Securities") under the Shelf Registration. See Note 5 of Notes to Consolidated Financial Statements. The net proceeds to the Company were approximately $246,282,000 and $196,680,000, respectively, after market and underwriting discounts. The Senior Notes and the Senior Debentures bear interest at the rate of 7.4% and 8.4% per annum, respectively, payable semi-annually on February 1 and August 1 of each year, commencing on August 1, 1994. The Senior Notes are not redeemable at the option of the Company. The Senior Debentures are redeemable, at the Company's option, at any time after February 1, 2004, at a redemption price of 104.161% of the principal amount, plus accrued and unpaid interest to the date of redemption, which redemption price reduces over 10 years to a redemption price of 100% of the principal amount in 2014 and thereafter. Each holder has the right to require the Company to repurchase such holder's Securities in whole, but not in part, at a redemption price, payable in cash, equal to 101% of the principal amount, plus accrued and unpaid interest to the date fixed for redemption, upon the occurrence of certain triggering events, including, without limitation, a change in control, certain restricted payments or certain consolidations, mergers, conveyances or transfers of assets, each as defined in the indenture. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Securities prior to maturity. The Company used substantially all of the net proceeds to repay amounts outstanding under the 1993 Credit Agreement incurred in connection with the acquisitions of Castle Rock and the remaining 50% interest in the Joint Venture. The Company and New Line Cinema Corporation ("New Line") completed a merger of New Line with a wholly-owned subsidiary of the Company on January 28, 1994 (the "Merger"). As a result of the Merger, each share of New Line Common Stock has been converted into the right to receive 0.96386 of a share of the Company's Class B Common Stock. The valuations used by New Line and the Company for purposes of arriving at the exchange ratio were $20 per share of New Line Common Stock and $20.75 per share of the Company's Class B Common Stock. The maximum number of Class B common shares issuable pursuant to the Merger is approximately 21,312,000 valued at approximately $442,000,000. Cash will be distributed in lieu of any fractional shares. Additionally, the Company assumed liabilities and incurred other acquisition costs of approximately $240,000,000 in connection with the Merger. The Merger was accounted for by the purchase method of accounting. Goodwill and other intangible assets in the amount of approximately $260,000,000 was recognized in the transaction, and will be amortized using a straight-line basis over 40 years. The Company has not received any appraisals or valuations from independent third parties of the assets or properties of New Line. The pro forma information presented below may be adjusted once complete information on the fair value of all of New Line's assets and liabilities is developed and once a more thorough review of New Line's operating and accounting policies and procedures has been completed. The following unaudited pro forma financial information is not intended to reflect results of operations which would have actually resulted had the transactions described above been effective on the dates indicated. Moreover, this pro forma information is not intended to be indicative of results of operations which may be obtained in the future. The unaudited pro forma condensed balance sheet at December 31, 1993 presents the pro forma condensed financial position of the Company, which includes the Acquisitions and the Merger assuming the Company acquired all of the outstanding stock of New Line pursuant to the Merger at December 31, 1993, and the Company adjusted its historical balance sheet as of such date to reflect the pro forma effects of the Merger. 50 26 The unaudited pro forma condensed balance sheet of the Company as adjusted for the pro forma effects of the above is as follows:
Unaudited December 31, in thousands 1993 - ---------------------------------------------- Current assets $1,309,716 Film costs 1,784,584 Other assets 868,626 - ---------------------------------------------- Total assets $3,962,926 ============================================== Current liabilities $ 471,239 Long-term debt less current portion 2,421,357 Other liabilities 629,209 Stockholders' equity 441,121 - ---------------------------------------------- Total liabilities and stockholders' equity $3,962,926 ==============================================
The unaudited pro forma condensed statements of operations for the years ended December 31, 1993 and 1992 present the pro forma results of the continuing operations of the Company, the Acquisitions and the Merger for those periods assuming the Acquisitions and the Merger occurred at the beginning of the periods presented. See Note 2 of Notes to Consolidated Financial Statements. The unaudited pro forma results of operations for the Company as adjusted for the pro forma effects of the above are as follows:
Unaudited Year ended December 31, in thousands, except per share data 1993 1992 - --------------------------------------------------------------------------- Revenue $2,444,457 $2,163,103 =========================================================================== Income (loss) before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 35,632 $ (8,104) Net income (loss) $ (281,061) $ 28,103 =========================================================================== Income (loss) per share of Class A and B Common Stock Income (loss) before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 0.12 $ (0.03) Net income (loss) $ (0.98) $ 0.10 ===========================================================================
=========================================================================== REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Turner Broadcasting System, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in stockholders' equity (deficit) present fairly, in all material respects, the financial position of Turner Broadcasting System, Inc. and its subsidiaries at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 7 to the Consolidated Financial Statements, the Company changed its method of accounting for income taxes in 1993. PRICE WATERHOUSE Atlanta, Georgia February 15, 1994 51 27 BOARD OF DIRECTORS Turner Broadcasting System, Inc. R. E. TURNER Chairman of the Board of Directors and President of the Company W. THOMAS JOHNSON Vice President - News of the Company President - Cable News Network, Inc. TERENCE F. MCGUIRK Executive Vice President of the Company President - Turner Sports HENRY L. AARON Vice President - Community Relations of the Company; Senior Vice President - Player Development of Atlanta National League Baseball Club, Inc. (Atlanta Braves) GERALD M. LEVIN Chairman of the Board of Directors, President and Chief Executive Officer - Time Warner Inc. TIMOTHY P. NEHER Vice Chairman of the Board of Directors - Continental Cablevision, Inc. WILLIAM C. BARTHOLOMAY President - Near North National Group RUBYE M. LUCAS Director of the Atlanta Project for the Company President - William D. Lucas Fund, Inc. BRIAN L. ROBERTS Director and President - Comcast Corporation JOSEPH J. COLLINS Chairman of the Board and Chief Executive Officer - American Television and Communications Corporation BOB MAGNESS Chairman of the Board of Directors - Tele-Communications, Inc. SCOTT M. SASSA Vice President - Entertainment Networks of the Company President - Turner Entertainment Group MICHAEL J. FUCHS Chairman of the Board and Chief Executive Officer - Home Box Office, Inc. JOHN C. MALONE Director, President and Chief Executive Officer - Tele-Communications, Inc. FRED A. VIERRA Executive Vice President - Tele-Communications, Inc. 52 28 CORPORATE INFORMATION Turner Broadcasting System, Inc. EXECUTIVE OFFICERS R. E. TURNER Chairman of the Board of Directors and President CHRISTIAN L. BECKEN Vice President and Treasurer WILLIAM S. GHEGAN Vice President, Controller and Chief Accounting Officer WILLIAM H. GRUMBLES* Vice President - Worldwide Distribution ELAHE HESSAMFAR Vice President - Chief Information Officer W. THOMAS JOHNSON Vice President - News and a director STEVEN W. KORN Vice President, General Counsel and Secretary TERENCE F. MCGUIRK Executive Vice President and a director WAYNE H. PACE Vice President - Finance and Chief Financial Officer SCOTT M. SASSA Vice President - Entertainment Networks and a director WILLIAM M. SHAW Vice President - Administration JULIA W. SPRUNT* Vice President - Marketing and Communications * William H. Grumbles and Julia W. Sprunt are married. CORPORATE HEADQUARTERS One CNN Center Atlanta, Georgia 30303 (404) 827-1700 OUTSIDE COUNSEL Troutman Sanders 5200 NationsBank Plaza 600 Peachtree Street, N.E. Atlanta, Georgia 30308-2216 INDEPENDENT ACCOUNTANTS Price Waterhouse 50 Hurt Plaza Atlanta, Georgia 30303 53 29 INVESTOR INFORMATION Turner Broadcasting System, Inc. COMMON STOCK TRANSFER AGENT AND REGISTRAR First Union National Bank of North Carolina Shareholders Services Group Two First Union Center Charlotte, North Carolina 28288-1154 (800) 729-8432 TRUSTEES AND PAYING AGENTS Credit Agreement The Chase Manhattan Bank, N.A. 90 William Street New York, New York 10081 12% Senior Subordinated Debentures* United States Trust Company of New York 45 Wall Street New York, New York 10005 8 3/8% Senior Notes due 2013 The First National Bank of Boston P.O. Box 1618 Boston, Massachusetts 02105 Zero Coupon Subordinated Convertible Notes due 2007 Security Pacific National Bank 2 Rector Street New York, New York 10006 * Listed on the American Stock Exchange. PRICE RANGE OF COMMON STOCK The Class A Common Stock trades on the American Stock Exchange ("AMEX") under the symbol "TBS.A" and the Class B Common Stock trades on the AMEX under the symbol "TBS.B". The following table sets forth, for the periods indicated, the high and low closing sales prices per share of common stock on the AMEX Composite Tape.
Calendar Year ------------------------------------------------- 1993 1992 High Low High Low - ---------------------------------------------------------------------------------------- First quarter Class A $23 3/4 $19 1/2 $26 7/8 $22 1/8 Class B 23 1/2 19 1/4 27 22 3/8 Second quarter Class A 23 3/4 20 23 3/4 20 Class B 23 5/8 20 22 7/8 19 Third quarter Class A 26 5/8 19 7/8 21 1/2 18 3/8 Class B 26 7/8 20 3/8 19 3/4 17 7/8 Fourth quarter Class A 29 1/4 24 1/8 22 7/8 18 7/8 Class B 29 24 1/4 22 17 3/4 - ----------------------------------------------------------------------------------------
STOCKHOLDERS The approximate number of holders of record of Class A Common Stock and Class B Common Stock as of December 31, 1993 was 1,741 and 1,686, respectively. This number does not include all individuals with beneficial interests in the stock. DIVIDEND POLICY Prior to 1992, the Company had not paid a cash dividend on its common equity since 1975. The following table sets forth the amount of cash dividends paid on the common shares in 1993 and 1992:
1993 1992 Dividends Dividends Per Share Per Share -------------------------------------------------- Class A Class B Class A Class B(1) Common Common Common Common - ---------------------------------------------------------------------------------------- First Quarter $0.01750 $0.01750 $0.01125 $0.0125 Second Quarter 0.01750 0.01750 0.01250 0.0125 Third Quarter 0.01750 0.01750 0.01250 0.0125 Fourth Quarter 0.01750 0.01750 0.01250 0.0125 - ----------------------------------------------------------------------------------------
(1) Holders of the Company's Class C Preferred Stock were entitled to an equivalent cash dividend of $0.105 and $0.0750, respectively, for each share held based on the number of underlying shares of Class B Common Stock. In June 1992, the Company amended its Articles of Incorporation to permit the payment of equal cash dividends per share on the Class A Common Stock and the Class B Common Stock. The Indentures governing the 12% Senior Subordinated Debentures and the 8 3/8% Senior Notes, and the Company's bank credit agreements contain provisions limiting the ability of the Company to pay cash dividends to the holders of its common shares. Currently, the most restrictive covenant limits the maximum aggregate amount of dividends permitted to be paid annually to such holders to $30 million. In any event, the declaration of dividends on common shares is within the discretion of the Board of Directors of the Company and is therefore subject to many considerations, including financial covenants, operating results, business and capital requirements and other factors. RESTRICTIONS ON STOCK OWNERSHIP The Communications Act of 1934 provides that no broadcast license may be held by a corporation in which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens. The Communications Act further prohibits, without Federal Communications Commission approval, the holding by a corporation of the capital stock of another corporation owning a broadcast license if more than 25% of the capital stock of such parent corporation is owned of record or voted by non-U.S. citizens. The Company's Articles of Incorporation incorporate these restrictions on non-U.S. ownership so that such restrictions are applied separately to each class of the Company's capital stock. The Company has reserved the right to refuse to transfer shares of its capital stock which would result in a violation of these restrictions. FORM 10-K REQUESTS The Company will provide copies of its 1993 Form 10-K upon written request directed to: Kitsie Bassett Riggall Assistant Vice President - Investor Relations Turner Broadcasting System, Inc. One CNN Center Atlanta, Georgia 30303 54 EX-21 10 LIST A,B 1 EXHIBIT 21 LIST A TURNER BROADCASTING SYSTEM, INC. ------------------------------------ (Wholly-Owned Subsidiaries) 1. Atlanta National League Baseball Club, Inc. ("ANLBC") ANLBC Subs: a. Atlanta Braves, Inc. ----------- b. Braves Productions, Inc. c. The Stadium Club, Inc. 2. CR Acquisition Co. 3. Cable News Network, Inc. ("CNN") CNN Subs: a. CNN America, Inc. --------- b. CNN Business News International, Inc. c. CNN Germany, Inc. d. Cable News International, Inc. 4. The Cartoon Network, Inc. *5. Castle Rock Entertainment, Inc. ("CR") CR Subs: *a. All Night Productions, Inc. ------- *b. Burmat Limited *c. Castle Rock Enterprises, Inc. *d. Castle Rock Pictures, Inc. *e. Castle Rock Productions, Limited *f. G.S.E. Enterprises, Inc. *g. Needful Productions, Ltd. *h. Sam Productions, Inc. *i. Signal Hill Production, Ltd. *j. Train Wreck Productions, Inc. 6. Goodwill Games, Inc. ("GWG") GWG Subs: a. Gamma Productions, Inc. -------- b. Turner Leasing Company Inc.
2 7. HB Holding Co. ("HBC") HBC Sub: a. Hanna-Barbera Entertainment Co., Inc. ("HBEC") -------- HBEC Subs: 1. Hanna-Barbera Enterprises, Inc. --------- 2. Hanna-Barbera Enterprises (S/C) Ltd. 3. Hanna-Barbera Enterprises (U.K.) Limited 4. Hanna-Barbera Home Video, Inc. 5. Hanna-Barbera Productions, Inc. ("HBPI") HBPI Subs: a. Fil-Cartoons, Inc. ---------- b. Hanna-Barbera B.V. c. Hanna-Barbera France, S.A. 6. Hanna-Barbera Music Corp. 7. Hanna-Barbera Retail, Inc. 8. R-S Pictures, Inc. 9. Raby-Spar Enterprises, Inc. 8. Hanna-Barbera, Inc. ("HB") HB Subs: a. Barhanna Music, Inc. -------- b. Hanna-Barbera Cartoons, Inc. ("HBCI") HBCI Subs: 1. Bedrock Productions, Inc. ---------- 2. The Endangered Film Company, Inc. c. Hanna-Barbera Character Art Services, Inc. d. Newbar Music, Inc. e. Vineland Productions, Inc. 9. Hawks Basketball, Inc. 10. ICC Ventures, Inc. 11. New Line Cinema Corporation ("NL") NL Subs: a. Alex Entertainment, Inc. -------- b. Juno Pix, Inc. c. Katja Motion Picture Corp. d. Lampline, Inc. e. Mitchell Entertainment, Inc. f. New Line Distribution, Inc.
2 3 g. New Line Home Video, Inc. h. New Line International Releasing, Inc. i. New Line Productions, Inc. j. New Line Realty of New York, Inc. k. New Line Television International Limited l. Nicolas Entertainment, Inc. m. Sargasso Productions Ltd. 12. RET Corporation 13. RET Music, Inc. 14. Soviet-American Trading Corporation 15. Superstation, Inc. 16. TBS Productions, Inc. ("TBSP") TBSP Subs: a. North Center Productions, Inc. ---------- b. Ten 50 Productions, Inc. 17. TBS Properties Inc. 18. T.I.C. Leasing Corp. 19. Turner Arena Productions and Sales, Inc. ("TAPS") TAPS Subs: a. Atlanta Coliseum, Inc. --------- b. The Omni Promotions Management Company ("OPMC") OPMC Sub: 1. Techwood Entertainment, Inc. -------- c. Seats, Inc. 20. Turner Broadcasting Sales, Inc. 21. Turner Cable Network Sales, Inc. ("TCNS") TCNS Sub: a. Turner Educational Services, Inc. --------- *22. Turner Classic Movies, Inc. 23. Turner Entertainment Co. ("TEC") TEC Subs: a. Clarington Productions, Inc. --------- b. Elstree Ltd. c. Entertainment Film and Tape Services Co. d. Filmland Data Processing Co. e. Filmland Production Co.
3 4 f. H-B Distribution Co. g. Premier Record Corporation h. TEC Bounty Exhibition, Inc. i. Turner Affiliated Music, Inc. j. Turner Entertainment Associated, Inc. k. Turner Entertainment Film Co. l. Turner Entertainment Manila, Inc. m. Turner Entertainment Co. (de Mexico) n. Turner Entertainment Oriental Co., Inc. o. Turner Entertainment Pictures of Canada Limited p. Turner Music, Inc. q. Turner Pictures (UK) Limited ("TPL") TPL Subs: 1. TBS Programmes International Limited --------- 2. Turner Productions International Limited 3. Turner Television Productions Limited r. Turner Tape Storage Co. 24. Turner Home Entertainment, Inc. THE Sub: a. World Championship Wrestling, Inc. -------- 25. Turner International, Inc.. ("TI") TI Subs: a. Turner Czech, Inc. -------- b. Turner Entertainment Co. (de Puerto Rico) c. Turner International Argentina S.A. d. Turner International Australia Pty. Limited e. Turner International do Brasil Ltda. f. Turner International Broadcasting Russia, Inc. g. Turner International Far East Limited h. Turner International Holding Company i. Turner International Japan, Inc. j. Turner International Netherlands B.V. k. Turner International Television Licensing Co., Inc. l. Turner Management Co. UK Limited
4 5 ("TMCUK") TMCUK Subs: *1. Turner Entertainment Networks ----------- International limited (TENI) TENI Subs *a. The Cartoon Network Limited --------- *b. Turner Network Television Limited *2. Turner Home Entertainment UK Limited *3. Turner International Advertising Sales Limited *4. Turner International Network Sales Limited ('TINSL") TINSL Sub: a. Turner Broadcasting International Limited ---------- *5. Turner International Television Licensing Limited *m. Turner Productions S.A. n. Turner Slovakia, Inc. 26. Turner Marketing, Inc. 27. Turner Music Publishing, Inc., 28. Turner Network Television, Inc. ('TNT') TNT Subs: a. The Awakening, Inc. --------- b. Retro, Inc., c. Spanish Creek Productions, Inc. d. TNT Music Publishing, Inc. e. Techwood Music, Inc. f. Techwood Productions, Inc. g. Turner Pictures, Inc. ("TPI") TPI Sub: 1. Colbath, Inc. -------- 29. Turner Omni Venture, Inc. 30. Turner Private Networks, Inc. ("TPNI") TPNI Subs: a. AC Holdings, Inc. --------- b. COC Holdings, Inc.
5 6 31. Turner Program Services, Inc. 32. Turner Publishing, Inc. 33. Turner Reciprocal Advertising Corporation 34. Turner Retail Company 35. Turner Security, Inc. 36. Turner Sports, Inc. 37. Turner Sports Programming, Inc. 38. Turner Teleport, Inc.
*New Subsidiary Revised: 3/22/94 6 7 LIST B TURNER BROADCASTING SYSTEM, INC. ALPHABETICAL LIST OF SUBSIDIARIES --------------------------------- 1. AC Holdings, Inc. (30a) * 2. Alex Entertainment, Inc. (11a) * 3. All Night Productions Inc. (5a) 4. Atlanta Braves, Inc. (1a) 5. Altanta Coliseum, Inc. (19a) 6. Atlanta National League Baseball Club, Inc. (1) 7. The Awakening, Inc. (28a) 8. Barhanna Music, Inc. (8a) 9. Bedrock Productions, Inc. (8b1) 10. Braves Productions, Inc. (1b) *11. Burmat Limited (5b) 12. CNN America, Inc. (3a) 13. CNN Business News International, Inc. (3b) 14. CNN Germany, Inc. (3c) 15. COC Holdings, Inc. (30b) 16. CR Acquisition Co. (2) 17. Cable News International, Inc. (3d) 18. Cable New Network, Inc. (3) 19. The Cartoon Network, Inc. (4) *20. The Cartoon Network Limited (2511a) *21. Castle Rock Entertainment, Inc. (5) *22. Castle Rock Enterprises, Inc. (5c) *23. Castle Rock Pictures, Inc. (5d) *24. Castle Rock Productions, Limited (5e) 25. Clarington Productions Inc. (23a) 26. Colbath, Inc. (28g1) 27. Elstree Ltd. (23b) 28. The Endangered Film Company, Inc. (8b2) 29. Entertainment Film and Tape Services Co. (23c) 30. Fil-Cartoons, Inc. (7a5a) 31. Filmland Data Processing Co. (23d) 32. Filmland Production Co. (23e) *33. G.S.E. Enterprises, Inc. (5f) 34. Gamma Productions, Inc. (6a) 35. Goodwill Games, Inc. (6) 36. H-B Distribution Co. (23f) 37. HB Holding Co. (7)
8 38. Hanna-Barbera B.V. (75b) 39. Hanna-Barbera Cartoons, Inc. (8b) 40. Hanna-Barbera Character Art Services, Inc. (8c) 41. Hanna-Barbera Enterprises, Inc. (7a1) 42. Hanna-Barbera Enterprises (S/C) Ltd. (7a2) 43. Hanna-Barbera Enterprises (U.K.) Limited (7a3) 44. Hanna-Barbera Entertaiment Co., Inc. (7a) 45. Hanna-Barbera France, S.A. (7a5c) 46. Hanna-Barbera Home Video, Inc. (7a4) 47. Hanna-Barbera, Inc. (8) 48. Hanna-Barbera Music Corp. (7a6) 49. Hanna-Barbera Productions, Inc. (7a5) 50. Hanna-Barbera Retail, Inc. (7a7) 51. Hawks Basketball, Inc. (9) 52. ICC Ventures, Inc. (10) *53. Juno Pix, Inc. (11b) *54. Katja Motion Picture Corp. (11c) *55. Lampline, Inc. (11d) *56. Mitchell Entertainment, Inc. (11e) *57. Needful Productions, Ltd. (5g) 58. Newbar Music, Inc. (8d) *59. New Line Cinema Corporation (11) *60. New Line Distribution, Inc., (11f) *61. New Line Home Video, Inc. (11g) *62. New Line International Releasing, Inc. (11h) *63. New Line Productions, Inc. (11i) *64. New Line Realty of New York, Inc. (11j) *65. New Line Television International Limited (11k) *66. Nicolas Entertainment Inc. (11l) 67. North Center Productions, Inc. (16a) 68. The Omni Promotions Management Company (19b) 69. Premier Record Corporation (23g) 70. RET Corporation (12) 71. RET Music, Inc. (13) 72. R-S Pictures, Inc. (7a8) 73. Raby-Spar Enterprises, Inc. (7a9) 74. Retro, Inc. (28b) *75. Sam Productions Inc. (5h) *76. Sargasso Productions Ltd. (11m) 77. Seats, Inc. (19c) *78. Signal Hill Productions, Ltd. (5i) 79. Soviet-America Trading Corporation (14) 80. Spanish Creek Productions, Inc. (28c) 81. The Stadium Club, Inc. (1c)
2 9 82. Superstation Inc. (15) 83. TBS Productions, Inc. (16) 84. TBS Programmes International Limited (23q1) 85. TBS Properties, Inc. (17) 86. TEC Bounty Exhibition, Inc. (23h) 87. T.I.C. Leasing Corp. (18) 88. TNT Music Publishing, Inc. (28d) 89. Techwood Entertainment, Inc. (19b1) 90. Techwood Music, Inc. (28e) 91. Techwood Productions, Inc. (28f) *92. Ten 50 Productions, Inc. (16b) *93. Train Wreck Productions, Inc. (5j) 94. Turner Affiliated Music, Inc. (23i) 95. Turner Arena Productions and Sales, Inc. (19) 96. Tuner Broadcasting International Limited (2514a) 97. Turner Broadcasting Sales, Inc. (20) 98. Turner Cable Network Sales, Inc. (21) *99. Turner Classic Movies, Inc. (22) *100. Turner Czech, Inc.. (25a) 101. Turner Educational Services, Inc. (21a) 102. Turner Entertainment Associated, Inc. (23j) 103. Turner Entertainment Co. (23) 104. Turner Entertainment Co. (de Mexico) (23m) 105. Turner Entertainment Co. (de Puerto Rico) (25b) 106. Turner Entertainment Film Co. (23k) 107. Turner Entertainment Manila, Inc. (23l) *108. Turner Entertainment Networks International Limited (2511) 109. Turner Entertainment Oriental Co., Inc. (23n) 110. Turner Entertainment Pictures of Canada Limited (23o) 111. Turner Home Entertainment, Inc. (24) *112. Turner Home Entertainment UK Limited (2512) *113. Turner International Advertising Sales Limited (25l3) *114. Turner International Argentina S.A. (25c) 115. Turner International Australia Pty. Limited (25d) 116. Turner International Broadcasting Russia, Inc. (25f) 117. Turner International do Brasil Ltda, (25c) 118. Turner International Far East Limited (25g) *119. Turner International Holding Company (25h) 120. Turner International, Inc. (25) 121. Turner International Japan, Inc. (25i) 122. Turner International Netherlands B.V. (25j) 123. Turner International Network Sales Limited (2514) 124. Turner International Television Licensing Co., Inc. (25k) *125. Turner International Television Licensing Limited (2515)
3 10 126. Turner Leasing Company, Inc. (6b) *127. Turner Management Co. UK Limited (251) 128. Turner Marketing, Inc. (26) 129. Turner Music, Inc. (23p) 130. Turner Music Publishing, Inc. (27) 131. Turner Network Television, Inc. (28) *132. Turner Network Television Limited (2511b) 133. Turner Omni Venture, Inc. (29) 134. Turner Pictures, Inc. (28g) 135. Turner Pictures (UK) Limited (23q) 136. Turner Private Networks, Inc. (30) 137. Turner Productions International Limited (23q2) *138. Turner Productions S.A. (25m) 139. Turner Program Services, Inc. (31) 140. Turner Publishing, Inc. (32) 141. Turner Reciprocal Advertising Corporation (33) *142. Turner Retail Company (34) 143. Turner Security, Inc. (35) *144. Turner Slovakia, Inc. (25n) 145. Turner Sports, Inc. (36) 146. Turner Sports Programming, Inc. (37) 147. Turner Tape Storage Co. (23r) 148. Turner Teleport, Inc. (38) 149. Turner Television Productions Limited (23q3) 150. Vineland Productions, Inc. (8e) 151. World Championship Wrestling, Inc. (24a)
4 EX-23 11 CONSENT OF ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 33-24191 and No. 33-52173) and in the Prospectuses constituting part of the Registration Statements on Form S-3 (No. 33-62218) and Form S-4 (No. 33-51739) of Turner Broadcasting System, Inc. of our report dated February 15, 1994 appearing on page 51 of the 1993 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 35 of this Form 10-K. /s/ Price Waterhouse -------------------- PRICE WATERHOUSE Atlanta, Georgia March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----